The Solow model is an important formal model of economic growth. Assume that the productionfunction is Y = F(K,N) = zK° N¹-a, where 0 < a < 1. Production is constant returns toscale. We use lowercase to denote variables in per capita terms. The evolution of capital is given byK' = (1 − d)K + I.Assume, as we have done so far, that I = sY and that N' =(1+n)N.Using these, find the correct equation for the evolution of capital-labor ratio, k.○ k'ska +(1-d)k1+nOk' = szkª+(1–d)k1+nsz²ka +(1-d)kk' =Ok'1+nskan¹-a+(1-d)k1+n

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

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Q5 Suppose in a Solow model, we have the following parameter values: n = 0, s = 0.5, a = 0.3. There is no growth in the total factor productivity so that A, = A = 1. Moreover, we know that at time 0, the economy is at a steady state so that k = k, =1. Now imagine that a foreign power invaded this %3D country. 1% of the population was killed and another 14% of the population fleeded the country to avoid violence. Moreover, 15% of capital stocks were destroyed. All of this happens in period t=1. After that, the war ended and there was no more destruction of capital or loss of population (but the refugee permanently settled outside of the country and will never return0. What is the growth rate of per-capita output in period t =4?
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Assume that the production function for output is given by Y = BK&TBEYL¹-a-B-y. Where T is a fixed amount of land, and E represents the energy input into production. ● Derive the steady-state growth rate of output per worker. Analyze the balanced growth path of this model. Explain "growth drag" resulting from the presence of natural resources.
Production function is given by Y= (1/2)K^a(AN)^(1-a), where a=2/3. The rate of depreciation of capital is equal to 15 percent, the rate of technological progress is equal to 3 percent, and the rate of population growth is equal to 2 percent. The economy was in the steady state at time tand the level of technology was equal to A=80. Use the Solow growth model to answer the following questions. 1. If the saving rate s=80 percent, the steady state level of output per unit of effective labor at time tis equal to ... 2. If the saving rate s=80 percent, the steady state level of consumption per unit of effective labor at time tis equal to ... 3. If the saving rate s=80 percent, the steady state level of consumption per worker at time tis equal to ..
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Sweden and Norway are two neighboring countries in Northern Europe with similar savings rates, population growth rates, technology growth rates, and depreciation rates. However, Norway differs from Sweden in that Norway has large deposits of oil all along its coast, which makes it very easy for Norway to produce large quantities of crude oil every year with relatively little capital and labor. a) Draw a Solow Growth diagram that compares Sweden and Norway. What is the main difference between the two countries in the diagram? b) According to the Solow Growth Model, which country would have a higher standard of living in the long run? Which country would have a higher growth rate of its standard of living in the long run? c) Suppose now that, in the long run, oil becomes obsolete and has no value because it is uneconomical relative to renewable energy sources like solar and wind power. What would this do to your Solow Growth diagram in part a? How would the standard of living in Norway…
Consistent with the data, the Solow model shows that there is correlation between the population growth rate and real GDP per capita. Selected answer will be automatically saved. For keyboard navigation, press up/down arrow keys to select an answer. a b C a positive a negative zero
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Suppose a Solow economy is initially at its steady state k∗, and suddenly is hit by a decrease in the depreciation rate δ, from δ to δ1. This change does not alter any of the other exogenous parameters in the model Depict this situation in a graph What happens to steady state level of capital per capita in this situation? What happens to the level of capital per capita over time? Depict this in a graph and explain intuitively.

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