Consider the Swan-Solow model of economic growth. [Hint: Question (e) below goes beyond the subject matter discussed in the lecture and requires you to think independently.] a) Draw a suitable diagram with a typical Aggregate Production Function in it. b) Draw a typical Investment curve into the diagram. Briefly explain how you came up with the curve and what you need to know to exactly pin it down. c) Draw a typical Depreciation curve into the diagram. Briefly explain how you came up with the curve and what you need to know to exactly pin it down. d) Briefly define the steady state and show it in your diagram. e) It has been argued that corruption affects economic growth (e.g. Mankiw/Taylor, 5th ed., pp. 479-480). Explain which of the curves in your diagram is most plausibly affected by a reduction in corruption in an economy, and what this effect would be. f) Use your diagram to show how the effect that you have identified in part (e) affects the steady state in the model.
Consider the Swan-Solow model of
[Hint: Question (e) below goes beyond the subject matter discussed in the lecture and requires you
to think independently.]
a) Draw a suitable diagram with a typical Aggregate Production Function in it.
b) Draw a typical Investment curve into the diagram. Briefly explain how you came up with the
curve and what you need to know to exactly pin it down.
c) Draw a typical Depreciation curve into the diagram. Briefly explain how you came up with
the curve and what you need to know to exactly pin it down.
d) Briefly define the steady state and show it in your diagram.
e) It has been argued that corruption affects economic growth (e.g. Mankiw/Taylor, 5th ed., pp.
479-480). Explain which of the curves in your diagram is most plausibly affected by a
reduction in corruption in an economy, and what this effect would be.
f) Use your diagram to show how the effect that you have identified in part (e) affects the
steady state in the model.
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