Illustrate the Steady-State of the Solow-Swan model and show the effect of an increase in the savings rate on the Steady-State. PLease expain detail with the diagram.

What is the downside of using prizes to promote the creation of new technology? O It slows the spread and development of those ideas by restricting competition. Government money may be misdirected towards unproductive projects. O It prohibits competition forever. O Without a market test, prizes might be given to technology which ends up being useless. According to the Solow model, what portion of total savings in the economy goes towards investment? 50% 10% 90% O 100%

Q12

Say whether following statement is True or False. Please provide a concise explanation of this as well as an explanation with a diagram.   1. In the Malthusian model as long as population growth is an increasing function of the level of consumption, an exogenous fall in population due to war or famine will have no impact on consumption per capita in steady state.

2. Consider the Romer model: Y = ALyt AA++1 = ZA,Lat Lat + Lyt = L Lat = IL a) Assume that A, = 1, ī = 0.02, z = 0.0001, L = 10,000. Find the growth rate of knowledge in and the growth rate of output per person. the economy b) Compare two economies: one with parameter values as in a) and the other one with the same parameter values except for the initial set of knowledge A, = 5. Briefly explain what will be the differences in the growth rates of knowledge and output per worker? Show the paths for output per worker on a graph. c) The government believes that the growth rate of output per worker is low and thinks about measures that would increase it. There are two options: (i) doubling the share of workers employed in the research sector, and (ii) increasing the population size by one third. The government can choose only one option. Which option would you recommend and why? Use a graph in your answer.

16 True or False? The key difference between the Solow and production/expenditure models of the economy is that the Solow model endogenizes the saving rate.

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