Question

The economy of Glovania can be described by the Solow growth model. At the steady state, in Glovania the labor force grows at 3 percent per year, labor-augmenting technology increases at 2 percent per year, the saving rate is 15 percent per year, and the rate of capital depreciation is 10 percent per year. Choosing from among the following variables—output per effective worker, output per worker, total output, labor force, capital per worker, and capital per effective worker—which variables will be growing at a:

a) 2 percent rate?

b) 3 percent rate?

c) 5 percent rate?

d) 0 percent rate?

Answer 1

Answer

a) 2 percent rate - output per worker , capital per worker

As it is already mentioned in question that at 2% labour augmenting technology takes place . So when growth takes place by 2 % output per worker and capital per can take place .

b) 3 percent rate - labour force

As it is already mentioned in question that at 3% labour force takes place . So other option can't be applied

c) 5 percent rate - total output .

At 5 % both the output per worker , capital per worker and labour force will take place ( 2+3) = 5 . This will result into total output .

d) 0 percent rate - output per effective worker,capital per effective worker

Since increase is by 0 % therefore only effective worker and capital that can be useful are required .