Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Question
Chapter 5, Problem 2E
(a)
To determine
The changes to the economy over time in the Solow diagram.
(b)
To determine
The changes in the output of Country C’s economy over time.
(c)
To determine
The changes to the growth rate of Country C’s economy.
(d)
To determine
The effect of technological transfer on the
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Students have asked these similar questions
Consider the following numerical examples for the Solow Growth Model:
Economy A
z=1
s=0.5
F(K,N)=K0.3N0.7
n=0.01
d=0.1
Economy B
z=1
s=0.2
F(K,N)=K0.3N0.7
n=0.01
d=0.1
In which economy is GDP per capita higher in steady state?
O Economy A
O Economy B
O Not enough Information
According to the Solow-Swan model, for a country that is initially in steady state, if the technology
parameter A rises, then:
the per capita capital stock initially increases, then returns to its initial steady state level
the per capita capital stock decreases and the country moves to a new, lower steady state level of per capita
income
the per capita capital stock initially decreases, then returns to its initial steady state level
O the per capita capital stock increases and the country moves to a new, higher steady state level of per capita
income
Use the Solow model below to answer the question.
Y
Y3
Y₂
Y₁
K₁₁
K₂
K3
Y = Af(K,H)
dk
SY
K
Suppose that Y₁ is 1,475, Y₂ is 6,184, and Y3 is 10,992. The savings rate for this economy is 30%
and the depreciation rate is 8.2%.
If this economy is currently at a GDP of 1,475, what is the smallest amount of foreign aid which
would move the economy up to a GDP of 10,992?
Assume that all foreign aid becomes investment. Round your final answer to two decimal places.
Chapter 5 Solutions
Macroeconomics (Fourth Edition)
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- In class we assumed that the rate of population growth "n" was a constant. This was true for the Solow-Swan growth model as well as for the AK model. Imagine now that the rate of population growth is a function of k. Do you think fertility should be a function of k? An increasing or decreasing function of k? (Think of the costs and benefits of having children, and the reasons that lead people to purchase and produce kids) In the real world, do rich societies have larger or smaller fertility rates? Do you think mortality should be a function of k? An increasing or decreasing function of k? In the real world, do rich societies have larger or smaller mortality rates? Do you think net migration is a function of k? An increasing or decreasing function of k? In the real world, do rich societies tend to receive or to send migrants? а. b. C.arrow_forwardYou were discussing the growth models with your friend Gaston during spring break. He summarized that the basic difference between the Solow model and the Romer model is that the Solow model suffers from diminishing returns-each additional unit of capital has less benefit than the previous unit. The Romer model doesn't have the same problem as labor used to generate new ideas doesn't have diminishing returns. He hypothesizes that if you changed the law of motion to At+1 = At + zol1/2A; that now the Romer model has diminishing returns to labor and will reach a steady state where growth is zero. Is he right?arrow_forward(a) Consider an economy that is initially in a steady state equilibrium. Assume that in this equilibrium it has a saving rate of 50 per cent and a depreciation rate of 2 per cent. Further assume that the population growth rate is 3% and that the level of output produced can be represented by the following production function: = where A = 1 and = 0.5. Use the Solow-Swan model to determine the level of capital per worker and output per worker in this economy. (1 mark) (b) Now suppose the government introduces a set of policies to improve the institutional set up as well as better production technique which increases total factor productivity by double. What is the new steady state level of capital per worker and output per worker? (1 mark) (c) Use a Solow-Swan diagram to show the qualitative effects of this new government policy upon steady state output per worker and capital per worker. Briefly describe the intuition behind this result. (1 mark) (d) Now suppose, population growth rate…arrow_forward
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