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Question 1
Some data at first might seem puzzling: The share of
If the saving rates were the same, why were the growth rates so different?
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Solved in 2 steps
- Which of the following two countries A and B ceteris paribus do you expect to have the higher steady-state level of GDP per capita? Moreover, which country do you expect to grow faster? For this, you may assume that both countries will initially start their growth paths below their corresponding steady states. a) The two countries have initially the same levels of GDP per capita but country A has a higher savings rate . b) The two countries have initially the same levels of GDP per capita but population in country A grows at a rate of 10% while in country B population grows at a rate of 8%. c) The two countries have initially the same levels of GDP per capita but the average educational attainment of workers in country A is about 1.2 times higher than in country B.The following figure shows that the average growth rate of real per capita GDP is negatively related to the initial level of real per-capita GDP. Average real per capita growth (5) 4.50 4.00 3.50 3.00 2.50 ||US -2.11 1.50 1.00 0.50 0.00 PHI O Dein HA 02.000 6,000 10,000 14,000 Real income per capita, 1950 Per capita growth 1950-2007 for 22 OECD countries What can we conclude from the above Figure? Because of the diminishing returns to capital accumulation, we should see tendencies for unconditional convergence between poor and rich countries. Divergence between countries is expected if we make conditions on key variables such as population growth rates and savings rates. If countries have similar features such as population growth rates and saving rates, then conditional convergence may occur The OECD countries are homogeneous Richer is the country, faster is its growth rateAn economy with a population growth rate of 1.5 percent and a rate of technological growth of 2.5 percent is in the steady state. If the capital- output ratio is 2, depreciation amounts to 10 percent of GDP, and capital income is 25 percent of GDP, then this economy would need to__________ the Golden Rule steady state. O. increase its saving rate to reach O. do nothing to its saving rate because this economy is already at O. decrease its saving rate to reach O. decrease the steady-state stock of capital per effective worker to reach
- 2. You are a manager at a large shampoo company and on the search for future markets. You identified two low income countries that look very dynamic: Country A has a GDP/capita growth rate of -1% and population growth rate of 9%. Country B has a GDP/capita growth rate of 7% and constant population. (a) Discuss which country you should focus on for your expansion. (b) Discuss if your answer would change if the products you are trying to sell are cars.Assume that a leader country has real GDP per capita of $80,000, whereas a follower country has real GDP per capita of $40,000. Next suppose that the growth of real GDP per capita falls to zero percent in the leader country and rises to 5 percent in the follower country. If these rates continue for long periods of time, how many years will it take for the follower country to catch up to the living standard of the leader country? Instructions: Enter your answer as a whole number. yearsSuppose that for a particular country, the savings rate is 20%, the capital–output ratio is 4, the depreciation rate is 1%, and the rate of growth of the population is 2% per year. a) Calculate the rate of growth of overall GDP. b. What is the rate of per capita GDP growth? c. What should the savings rate be to get the growth rate of overall GDP to 8%?
- estion 30 A country with neither population growth nor technological progress is nitaly in the golden-rule steady state. Carefuly ilustrate this situation using a graph with output per worker, investment per worker, and depreciation per worker on the vertical axis and capital per worker on the horizontal axis. Now suppose climate change increases the depreciation rate. If the country adjusts its saving rate to reach the new golden- rule steady state, is it possible to determine how output per worker and consumption per worker in the new steady state compare to their levels in the initial steady state? Explain.The fictitious country "Alpha" has a real GDP per person of $10,000. Instructions: Enter your responses rounded to the nearest penny (two decimal places). a. If Alpha has a 1% growth rate in real GDP per person, then after 15 years Alpha's real GDP per person is $ b. If Alpha has a 2% growth rate in real GDP per person, then after 15 years Alpha's real GDP per person is $ c. After 15 years, the difference in Alpha's real GDP per person based on the two growth rates is $a. Given a per capita production function ofy= k^0.5, a savings rate of 10%, a depreciation rate of 2%, a technological growth rate of 1%, and a population growth of 3%, what is this economy's steady-state level of output per capita. In a sentence, describe over time what is happening to this economy's level of RGDP when the economy is in a steady state. b. Imagine that the economy described in part a of this problem begins time (tO) with 1 unit of capital per effective worker. Assume that investment demand rises at the same rate as real GDP. Further, assume that by time t1 this economy has achieved the steady-state level of capital. On the left-hand side of the plots below, diagram the movement of the requested variables between time to and time t1.
- Consider two developed and developing countries, the population growth rate of developed countries is 2 percent per year and saving rate of 30 percent. The developing country has a population growth rate of 5 percent and saving rate of 10 percent. Suppose that initial technology of the developed country is 10 times higher than that of the developing country and that both countries have the same productivity growth and depreciation rate: g - 0.02 and 5=0.03. Assume that a - 1/ 3. In a steady state, how much is the developed country's GDP per capita larger than the developing country?The following table shows the GDP per capita of various countries forthe years 1960 and 2010 in PPP-adjusted 2005 dollars. The table alsocontains the implied growth rates, which show how much on average eachcountry needed to grow each year to reach the 2010 level of GDP per capitastarting from the 1960 level of GDP per capita. Use the table to answer thefollowing questions. 1. During 1960-2010, which countries were able to reduce the gap betweentheir GDP per capita and the U.S. GDP per capita?1. Growth experiences Small differences in the rate of economic growth can lead to large differences in living standards. Consider two countries: Upper Richistan and Lower Richistan. Currently, real GDP per person (average income) is $55,000 in Upper Richistan and $13,750 in Lower Richistan. Suppose you want to project what the real GDP per person will be in each country 100 years from now. The following formula shows how to compute the average income in ʼn years, where g represents the growth rate of real GDP per person (in decimal form-that is, 1.2% is entered as 0.012): Average Income in n Years = Current Average Income × (1 + g)' n Use the growth formula to find the correct amounts to select to fill in the following table. Growth Rate Average Income after 100 Years (Percent) (Dollars) 1.2 1.6 4 4.3 Suppose Upper Richistan's growth rate is expected to grow at 1.2% and remain there for the next 100 years. Which of the following growth rates in Lower Richistan would cause the average…