Consider an economy that is described by the Solow model without technological progress, and that is...

Consider an economy that is described by the Solow model without technological progress, and that is on its balanced growth path. Suppose that the citizens of the country decide that, in order to spur economic growth, henceforth each worker will work from 9 to 6 each day instead of from 9 to 5. Describe how this change affects the paths of output per worker and capital per worker over time.

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Expert Solution

If each worker decides to work more, this will shift the production function upwards. This is because there will be rise in productivity. With the same number of workers, the country can produce more with each worker working more.

The saving curve will also shift upwards. This is because more working hours means more income. More income implies more savings.

Accordingly, the stready state level of output rises. This is reflected in more output per worker and more capital per worker.

Rahul Sunny answered 1 year ago

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