Question

5. Draw a well-labeled graph that illustrates the steady state of the Solow model with population growth. Use the graph to find what happens to steady-state capital per worker and income per worker in response to each of the following exogenous changes. a. A change in consumer preferences increases the saving rate. b. A change in weather patterns increases the depreciation rate. c. Better birth-control methods reduce the rate of population growth

Answer 1

Answer: (A) saving rate :/ A change in consumer preferences increases the Solow model Diagram: • An in crease in savings rate Sa>s, ↑ Capital output y*= f(kt) (8tnik Esq.f(K) + siif(k) kit kat per worker capital | (6 A change in weather patterns increases the depreciation rate: • se >8 An increase in depreciation rate

↑ Capital, output f(kit) - (S2+0) K - (stnk 3. f(k) kat < k* per worker - Capital reduce the rate of Better Birth control methode population growth: growth rate, n (ie) naan, An decrease in population . f capital output f(ket) f(kit) (8 +nik (Strz)k Sof(K) kit per worker kit kt k Capital

a A one time permanent improvement in technology increases the amount of ole that can be produced from any given amount of capital and labor: function, • An improvement in the production fa (K) > fick) n capital, output ↑ capital, output tick) fick) - (stnik 1 (8+nOK S fick) kit per worker ki * percworker capital Capital No