Question

Problem 3 Discuss the effects of an increase in the saving rate and population growth on per capita output and the growth rate of per capita output in the long run. Problem 4 Consider an economy with technical growth on a balanced growth path. Now suppose that the saving rate increased because of a poliey change. Analyze transitional dynamics in terms of the Solow diagram. Problem 5 Investigate how the real rental price of capital r and the real wage rate w changes over time in the Solow model with technical progres:s

Answer 1

Answer 3.)

increase in savings rate has only level effect in the long run, it doesn't exhibit any growth effect .

So when saving rate rises, only the level of per capita output gets higher permanently in the Economy, it doesnt cchange the growth rate of per capita output.

Similarly population growth rate rises also has only level effect, per capita GDP level gets reduced permanently to a new lower steady state level. With unchanged growth rate of per capita GDP.