6. An earthquake: Consider a Solow economy that begins in a steady state. Then a strong...
6. An earthquake: Consider a Solow economy that begins in a steady state. Then a strong earthquake destroys half the capital stock. Use a Solow diagram to explain how the economy behaves over time. Draw a graph showing how output evolves over time, and explain what happens to the level and growth rate o per capita GDP. (Hint: Pay close attention to footnote 4 on page 121 - does any curve shift?)
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6. An earthquake: Consider a Solow economy that begins
in a steady state. Then a strong...
12. What happens with no diminishing returns? Consider a Solow model where the production function no...
12. What happens with no diminishing returns? Consider a Solow model where the production function no longer exhibits diminishing returns to capital accu- mulation. This is not particularly realistic, for reasons discussed in Chapter 4. But it is interesting to consider this case nonetheless because of what it tells us about the workings of the Solow model. Assume the production function is now Y, = AK. The rest of the model is unchanged. (a) Draw the Solow diagram in this...
8. Per capita GDP in the long run: Suppose an economy begins in steady state. By...
8. Per capita GDP in the long run: Suppose an economy begins in steady state. By what proportion does per capita GDP change in the long run in response to each of the following changes? (a) The investment rate doubles. (b) The depreciation rate falls by 10%. (c) The productivity level rises by 10%. (d) An earthquake destroys 75% of the capital stock. (e) A more generous immigration policy leads the population to double.
Consider an economy that follows the dynamic as in the Solow model developed in class, with...
Consider an economy that follows the dynamic as in the Solow model developed in class, with constant L. Suppose a country enacts a tax policy that discourages investment, and the policy reduces the investment rate immediately and permanently from s to s1. Assuming the economy starts in its initial steady state, use the Solow model to explain what happens to the economy over time and in the long run. Draw a graph showing how output evolves over time (put ????...
Consider an economy that follows the dynamic as in the Solow model developed in class, with...
Consider an economy that follows the dynamic as in the Solow model developed in class, with constant L. Suppose a country enacts a tax policy that discourages investment, and the policy reduces the investment rate immediately and permanently from s to s1. Assuming the economy starts in its initial steady state, use the Solow model to explain what happens to the economy over time and in the long run. Draw a graph showing how output evolves over time (put Yt...
Growth rates in the Solow model
Growth rates in the Solow model (II): Suppose an economy begins in steady state and is characterized by the following parameter values: s 0.2, d 0.1, A 1, L 100. Apply your answer to question 8 to calculate the growth of per capita GDP in the period immediately after each of the changes listed below. (Hint: Since the economy begins in steady state, its growth rate is initially zero and Kt K*.)(a) The investment rate doubles.(b) The productivity level rises...
Growth rates in the Solow model
Growth rates in the Solow model (II): Suppose an economy begins in steady state and is characterized by the following parameter values: s 0.2, d 0.1, A 1, L 100. Apply your answer to question 9 to calculate the growth of per capita GDP in the period immediately after each of the changes listed below. (Hint: Since the economy begins in steady state, its growth rate is initially zero and Kt K*.)(a) The investment rate doubles.(b) The productivity level rises...
Question 7 Suppose an economy begins in steady state which has a production function of Y...
Question 7 Suppose an economy begins in steady state which has a production function of Y = ĀK3L3. By what proportion does per capita GDP change in the long run (at the steady state) in response to each of the following changes? (a) The investment rate doubles. (b) The depreciation rate falls by 10%. (c) The productivity level rises by 10%. (d) An earthquake destroys 75% of the capital stock. (e) A more generous immigration policy leads the population to...
5. Foreign aid: Consider a Solow economy that begins with a cap to $300 billion, and...
5. Foreign aid: Consider a Solow economy that begins with a cap to $300 billion, and suppose its steady-state level of capital is 1o its pleasant surprise, the economy receives a generous gift of foreign aru in the form of $100 billion worth of capital (electric power plants, machine tools, etc.). (a) Use the Solow diagram, other graphs, and the mathematics of the Solow model to explain what happens to the economy, both immediately and over time. By what proportion...
1. President Trump has been campaigning for stricter immigration laws and for the deportation of millions...
1. President Trump has been campaigning for stricter immigration laws and for the deportation of millions of undocumented workers in the US. These policies can impact an est imated 10 million undocumented wor kers currently living in the US. Assume that Trump is successful in his deportation policy and as a result, the US economy experiences an immediate and permanent decrease in the level of the labor force. In particular suppose it decreases permanently from L to L. Assuming the...
Consider the Solow growth model with depreciation rate and population growth rate n. The equation of...
Consider the Solow growth model with depreciation rate and population growth rate n. The equation of motion for the capital stock and the per worker production function in this economy are given by: Ak= s(f(k) - (8 + n) k y= f(k) = k1/4 a). Suppose adoption of modern birth control methods in a developing country causes the population growth rate to decrease. What happens in the main Solow diagram: what curve(s) shin, what happens to the steady- state level...
12. What happens with no diminishing returns? Consider a Solow model where the production function no longer exhibits diminishing returns to capital accu- mulation. This is not particularly realistic, for reasons discussed in Chapter 4. But it is interesting to consider this case nonetheless because of what it tells us about the workings of the Solow model. Assume the production function is now Y, = AK. The rest of the model is unchanged. (a) Draw the Solow diagram in this...
8. Per capita GDP in the long run: Suppose an economy begins in steady state. By what proportion does per capita GDP change in the long run in response to each of the following changes? (a) The investment rate doubles. (b) The depreciation rate falls by 10%. (c) The productivity level rises by 10%. (d) An earthquake destroys 75% of the capital stock. (e) A more generous immigration policy leads the population to double.
Consider an economy that follows the dynamic as in the Solow model developed in class, with constant L. Suppose a country enacts a tax policy that discourages investment, and the policy reduces the investment rate immediately and permanently from s to s1. Assuming the economy starts in its initial steady state, use the Solow model to explain what happens to the economy over time and in the long run. Draw a graph showing how output evolves over time (put Yt...
Question 7 Suppose an economy begins in steady state which has a production function of Y = ĀK3L3. By what proportion does per capita GDP change in the long run (at the steady state) in response to each of the following changes? (a) The investment rate doubles. (b) The depreciation rate falls by 10%. (c) The productivity level rises by 10%. (d) An earthquake destroys 75% of the capital stock. (e) A more generous immigration policy leads the population to...
5. Foreign aid: Consider a Solow economy that begins with a cap to $300 billion, and suppose its steady-state level of capital is 1o its pleasant surprise, the economy receives a generous gift of foreign aru in the form of $100 billion worth of capital (electric power plants, machine tools, etc.). (a) Use the Solow diagram, other graphs, and the mathematics of the Solow model to explain what happens to the economy, both immediately and over time. By what proportion...
1. President Trump has been campaigning for stricter immigration laws and for the deportation of millions of undocumented workers in the US. These policies can impact an est imated 10 million undocumented wor kers currently living in the US. Assume that Trump is successful in his deportation policy and as a result, the US economy experiences an immediate and permanent decrease in the level of the labor force. In particular suppose it decreases permanently from L to L. Assuming the...
Consider the Solow growth model with depreciation rate and population growth rate n. The equation of motion for the capital stock and the per worker production function in this economy are given by: Ak= s(f(k) - (8 + n) k y= f(k) = k1/4 a). Suppose adoption of modern birth control methods in a developing country causes the population growth rate to decrease. What happens in the main Solow diagram: what curve(s) shin, what happens to the steady- state level...
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