Question

These questions are all related - hence I combined them. Thanks

Suppose that in order to limit the transmission of illness and disease, governments impose travel restrictions to with the consequence of preventing trade. Which variable of the Solow Growth Model changes to best capture the impact of this event?

		i
		y
		s
		c
		k
		n
		A
		d
		f

For as long as this restriction stays in place, what is the implication for the steady state level of capital?

		indeterminate
		remain unchanged
		decrease
		increase

Because of the change, the immediate consequence will be for the steady state level of investment to

		increase
		remain unchanged
		decrease
		indeterminate

According to the Solow growth model, the steady state level of consumption will be

I. lower than the steady state before the event change.

II. lower than the level of consumption immediately after the event change.

		both I and II are true
		I is true but not II
		neither I nor II are true
		II is true but not I

Answer 1

Answer 1

Option B) Y - Real gross domestic product

Reason-

With all the factors getting impacted, they all would contribute and lead to decrease in the real GDP of the country due to Covid 19 Corona Virus spread.

Answer 2

Option A) For as long as this restriction stays in place, the steady state level of capital remains unchanged.

Reason-

There would hardly be any new investments as far as capital investments are concerned. Also, there would neither be any kind of disinvestments. Thus, capital remains the same.

Answer 3

Option b) Reamins unchanged

Investment also is not likely to increase because of complete lockdown and no availability of labour.

Answer 4

Option a) Both 1 and 2 are true

Consumption would first drastically increase as soon as a lockdown situation is announced because people will start hoarding products. But later consumption would fall quite low (even lower than steady state before lockdown). This is majorly because of low supply and various other fears in the minds of the citizens.