Question

4) Consider Figure 4.3 in your Weil reading (pp. 87).starting from the steady state, suppose there is a change in cultural attitudes that encourages people to have more children for any given income level. Show and explain as fully as you can, what happens to the steady state level of income per capita and its progression over time.

Answer 1

when peo income economy The initial hita yetik - ! (n'td) k people start having more children for any give tened, then population grourth rate in the Lole, I increases. This change can be depicted in the on madel as: initial steady state uilibrium occurs at point 1 An increase in population & + an+d) k grauth rate causes upward to teste sy. shift in Ined) k to in'td) k 3 arrive and new steady state 3 equilibrium occurs at point where capital per capita and Output per capita have fallen to a ž Capital per new steady state level. capita Also, increase in population growth rate causes increases state grourth in steady rate from n to n' and economy needs to save more to maintain ginen capital - labor ratio and per capita income.