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In: Economics

Explain the relationship among output, saving, and investment. Suppose depreciation per worker is less than saving...

  1. Explain the relationship among output, saving, and investment.
  2. Suppose depreciation per worker is less than saving per worker. Given this situation, explain what will happen to each of the following variables over time: capital per worker, output per worker, saving per worker, and consumption per worker.
  3. During the latter half of the 1990s, the U.S. saving rate decreased. Will this reduction in the saving rate have a permanent effect on the rate of growth of output per worker? Explain.
  4. Graphically illustrate and explain the effects of an increase in the saving rate on the Solow growth model. In your graph, clearly label all curves and equilibria.
  5. Suppose policy makers wish to increase steady state consumption per worker. Explain what must happen to the saving rate to achieve this objective.
  6. Suppose the saving rate is greater than the golden rule saving rate (sG). First, explain what must happen to the saving rate in order to increase steady state consumption. Second, what are the advantages and disadvantages of this policy to increase steady state consumption.
  7. Explain the difference between fully funded social security system and pay-as-you-go social security system.

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Expert Solution

Rahul Sunny answered 2 years ago
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