Suppose, in the Solow growth model, that learning by doing is captured as a cost of...

Suppose, in the Solow growth model, that learning by doing is captured as a cost of installing new capital. In particular, suppose that for each unit of investment, r units of goods are used up as a cost to firms.
(a) Determine how r affects the steady state quantity of capita per worker, and per capita income.

(b) Now suppose that r differs across countries. How will these countries differ in the long run? Discuss.

Expert Solution

Rahul Sunny answered 1 year ago

Consider the Solow growth model with population growth and growth in the efficiency of labor. Suppose...

Consider the Solow growth model with population growth and growth in the efficiency of labor. Suppose that 2 countries A and B have the same production function given by Yt = Ktα(LtEt)1−α, the same rate of growth of E (g), the same depreciation rate of physical capital (δ) and the same saving rate s. The initial level of E, E0, is lower in country A than in country B. (a) Compare the steady-state levels of output per effective worker of...

Which of the following is true about the Solow Growth Model? a. In the Solow Growth...

Which of the following is true about the Solow Growth Model? a. In the Solow Growth model consumption per person always rises as k rises b. At a steady state the economy keeps growing with aggregate K, Y, C for example all rising over time c. At steady state the following condition must always hold at k*: sy=(n+d)k d. When the economy is below steady-state level of capital-per-worker then savings per worker is higher than breakeven investment e. Golden rule...

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

solow growth model describes what

Use the Solow growth model to answer the questions below. Suppose the population growth rate decreases...

Use the Solow growth model to answer the questions below. Suppose the population growth rate decreases in a permanent manner. a. Explain the impact on capital per worker. b. Explain the impact on output per worker. c. Explain the impact on consumption per worker

Suppose that in the Solow growth model the saving rate is 30 percent (s=0.03), population growth...

Suppose that in the Solow growth model the saving rate is 30 percent (s=0.03), population growth rate is 2 percent (n=0.02), depreciation rate is 8 percent (d=0.08), and production fuction is F(K,N)=zK^0.4N^0.6. a) Suppose that z=2. What is the steady state level of captial per worker and consumption per worker? b) What is the level of golden rule savings and golden rule capital stock? At the golden rule capital stock, what is the level of consumption per worker? c) Suppose...

Analyse and contrast the IS-LM model to the Solow Growth Model

The Solow growth model Suppose an economy was in steady state with population growing at 2%...

The Solow growth model Suppose an economy was in steady state with population growing at 2% yearly, and suddenly its population growth rate doubles to 4% yearly. What happens to this economy in the short and long run? Illustrate with a diagram.

Question 8 Evolution of the Solow Model. In introducing constant technological growth, the General Solow Model...

Question 8 Evolution of the Solow Model. In introducing constant technological growth, the General Solow Model addressed what weakness of the Basic Solow Model. Introducing the Human Capital Model helped address what 2 weaknesses of the General Solow Model.

Discuss the dynamics of K in solow model of growth?

Question