According to Solow’s model of economic growth, what determines the rate at which a nation’s income...

According to Solow’s model of economic growth, what determines the rate at which a nation’s income per person grows? Based on that model, what can a nation’s government do (if anything) to increase that growth rate either temporarily or permanently? Give 2 specific examples.

Solutions

Expert Solution

According to Solow’s model of economic growth, "Technological Progress" determines the rate at which a nation’s income per person grows.

So, in order to permanently increase the growth, government must increase technological progress.

Solow model predicts that if a country is far away from its steady state then it will grow faster as compared to a country which is at or near its steady state. An increase in savings rate raises the steady state level of capital and output. So if savings rate increases, the country will be farther from steady state than it earlier was. And untill it reaches the new steady state, the growth of country will be increased (though temporarily). A decrease in the rate of population growth will also have a similar effect.

Two specific examples are of Japan and Germany, who experienced massive growth after world war II due to their increased savings rate, and since their capital was destroyed in the war (i.e. moved farther away from their steady state level of capital)

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Economic growth a. According to the Solow model of economic growth, what determines the growth rate of...

Economic growth a. According to the Solow model of economic growth, what determines the growth rate of real income per person in the very long run (steady state)? Explain. b. What public policies have been proposed to increase the rate of economic growth? Explain.

This question concerns the Solow growth model. a. Illustrate the diagram for Solow’s Growth Analysis and...

This question concerns the Solow growth model. a. Illustrate the diagram for Solow’s Growth Analysis and fully label the diagram. Identify the point where the economy is on the balanced growth path and explain why this occurs at this point. b. On the diagram from part a, show the effect of a one time increase in the level of technology A. Indicate the point where the economy will be on a new balanced growth path, and explain how the transition...

What drives economic growth in the Solow model? What reduces economic growth in the Solow model?

2) Under Solow’s Growth Model, what are some policy recommendations to reach a higher steady state...

2) Under Solow’s Growth Model, what are some policy recommendations to reach a higher steady state or level of income per worker? What happens if we have an increase in the U.S. savings rate? What happens if we have an increase in the population growth rate?

According to economic growth theory, the level of the GDP and the rate of the real...

According to economic growth theory, the level of the GDP and the rate of the real GDP growth rate have different economic implications about the economic well-being of a country. If you are given the options, would you rather live in a nation with a high level of GDP and a low growth rate or in a nation with a low level of GDP and a high growth rate? Why? Economists consider education as an investment that has both private...

1. In the Solow growth model, the rate of economic growth in the long run depends...

1. In the Solow growth model, the rate of economic growth in the long run depends on a. the rate of progress of the “effectiveness” of inputs or the growth rate of total factor productivity b. the population growth rate c. the savings rate d. the level of education of the population 2. The rate of economic growth of output per worker in the US between 1800 and 2011 a. depended mostly on changes in TFP (total factor productivity) b....

Economic growth theory has the golden law of savings rate. What good, according to the theory,...

Economic growth theory has the golden law of savings rate. What good, according to the theory, would it be if the savings rate followed the golden rule? What happens if the savings rate is higher than the golden rule?

Derive the equilibrium in the Endogenous Growth Model. According to this model, what is the source...

Derive the equilibrium in the Endogenous Growth Model. According to this model, what is the source of economic growth?

Distinguish between a low and high income and a low and high economic growth rate. What...

Distinguish between a low and high income and a low and high economic growth rate. What are the key features of an economy that are present when incomes are high or fast growing and absent when incomes are low and stagnating or growing slowly? Provide an example of an economy with a low income and slow growth rate, a low income and rapid growth rate, and a high income with sustained growth over many decades.

What is the meaning of this statement? "Government policy determines whether the rate of growth in...

What is the meaning of this statement? "Government policy determines whether the rate of growth in a country's money supply is greater than the rate of growth in output. A government can increase the money supply simply by telling the country's central bank to issue more money." No graphs please. I need a detailed explanation

Subjects