Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Chapter 6.A, Problem 1E
To determine
Transition dynamics in the combined Solow-Romer model.
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Consider the following version of the Solow model:
A closed economy which is shown below, endogenous variables are Y,
I, C, i and exogenous variables are Go and Mo and parameters are
a,b,t,d,e, k.
Y= C+l+G
C= a+ b(1-t)Y
|= d-ei
G= Go
Md= Ms
Ma= ky-li
Ms=Mo
Calculate the equlibrium level of I by using inverse matrix rule.
Suppose the parameters of the Romer model take the following values:
A = 100
= 0.05, Z = 1/100, and I = 1,000. What is the growth rate of this
country's economy?
10 percent
O 40 percent
O 0.02 percent
O 50 percent
O 0.10 percent
Chapter 6 Solutions
Macroeconomics (Fourth Edition)
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Similar questions
- Consider now the two-period model in general equilibrium, so that prices, investment, and labor supply are endogenous, i.e. the production economy. Analyze and carefully explain graphically and in words the general equilibrium effects of a decrease in TFP for a benchmark economy with no frictions.arrow_forward1- Equilibrium-defining equations in an IS-LM model are presented as follows: Y=C+I+G, C = C₁ + f(Y) = g(r), I = 1o — h(r), G = Go, and Mo = 3Y - i(r) where Co, Io, Go, Mo> 0 are exogenous variables, and f, g, h, i are continuously differentiable wwwwww and strictly increasing functions satisfying: Y = C₁ + f(Y) = g(r*) + Io − h(r) + Go Mo 3Yi(*). = for the unique equilibrium (rª,Y*). You should also assume that f' (Y) = (0, 1) (Why?). Find dr*/d Mo and dy* /d Go, and interpret your results.arrow_forwardWhich of the graphs (if any) show a surprising or seemingly incorrect relationship based on what you know about conditional convergence and the Solow model?arrow_forward
- This question is with regards to Solow-Swan Model. Define what steady-state equilibrium is and how do key variables behave at the steady-state.arrow_forwardSee Figure 2.2 and examine the model. Unlike other circular flow models, this model is missing another sector/s. what is the missing sector?arrow_forwardIn the Romer model, if an economy's share of researchers decreases, there will be A) an immediate decrease in output and output growth will slow. B) an immediate increase in output and output growth will slow. C) an immediate increase in output and output growth will accelerate. D) an immediate decrease in output and output growth will accelerate. E) no change in output but output growth will slow.arrow_forward
- ECONOMETRICS: Consider the simple linear regression Y = a + b*X + u, What are the consequences of endogeneity?arrow_forwardDefine equilibrium and steady state. Can we find a steady state for each dynamic general equilibrium model? Why or why not?arrow_forward2. Consider the Romer model: Y = ALyt AA++1 = ZA,Lat Lat + Lyt = L Lat = IL a) Assume that A, = 1, ī = 0.02, z = 0.0001, L = 10,000. Find the growth rate of knowledge in and the growth rate of output per person. the economy b) Compare two economies: one with parameter values as in a) and the other one with the same parameter values except for the initial set of knowledge A, = 5. Briefly explain what will be the differences in the growth rates of knowledge and output per worker? Show the paths for output per worker on a graph. c) The government believes that the growth rate of output per worker is low and thinks about measures that would increase it. There are two options: (i) doubling the share of workers employed in the research sector, and (ii) increasing the population size by one third. The government can choose only one option. Which option would you recommend and why? Use a graph in your answer.arrow_forward
- Consider again the canonical OLG model with log preferences and a Cobb-Douglas production function, but assume that individuals now work in both periods of their lives. (a) Define a competitive equilibrium and the steady-state equilibrium. (b) Characterize the steady-state equilibrium and the transitional dynamics in this economy. (c) Can this economy generate overaccumulation?arrow_forwardQuestion 3: Assume a Cobb-Douglas production function. a) Find expressions for k*, y* and c* as a function of the parameters of the model, s, n, 6, g, a. Tip: start with the fundamental equation of motion. b) What is the golden rule level of k? Provide a graph with a short description.arrow_forwardDerive the expression for the speed of convergence for k in the Solow model. Show this is also the speed of convergence for output y. Interpret.arrow_forward
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