Principles of Macroeconomics Consider two economies (US and CAN) that begin in steady state. The two...

Principles of Macroeconomics

Consider two economies (US and CAN) that begin in steady state. The two countries are identical. The production function is:

? = ?? + ?

Suppose the following parameter values:

? = 1, ? = 0.1, ? = 0.2, ? = 1000

Then, a strong earthquake destroys 90% the steady state physical capital in CAN and 10% the steady state physical capital in US.

Assume these new levels of steady state physical capital become the starting levels of capital for each economy at period 0: ?₀.

Find the growth rate of output for each economy between the periods 0 and 1. Do you observe the catch-up effect (Mankiw, Chapter 12) in this case? Explain in terms of the level of output and its corresponding growth rate.

Expert Solution

Rahul Sunny answered 2 years ago

What are the two basic types of economies? in macroeconomics

Assume that both economies are in the steady state, and they reach an agreement that allows...

Assume that both economies are in the steady state, and they reach an agreement that allows free movement of workers (not capital) across the two countries. What type of migration patterns would you expect across the two countries? Why? Who benefits and who loses from the migration flow?

Macroeconomics Problem 3 Prove each of the following statements about the steady state of the Solow...

Macroeconomics Problem 3 Prove each of the following statements about the steady state of the Solow model with population growth and technological progress. a. The capital– output ratio is constant. b. Capital and labor each earn a constant share of an economy’s income. [Hint: Recall the definition MPK= f( k + 1) - f(k).] c. Total capital income and total labor income both grow at the rate of population growth plus the rate of technological progress, n + g. d....

1. Could two economies of different sizes ever have the same exact steady-state conditions when being...

1. Could two economies of different sizes ever have the same exact steady-state conditions when being analyzed through the Solow Growth model? Justify your answer. 2.Could two economies of different sizes ever have the same exact steady-state conditions when being analyzed through the Solow Growth model? Justify your answer. 3. Improved technology is likely to A) displace worker, causing high unemployment. B) increase the marginal product of labor. C) reduce productivity. D) reduce wages. 4. From 1995 to 2008, the...

Calculate the steady-state level of capital in each of the following economies. Unless other- wise stated,...

Calculate the steady-state level of capital in each of the following economies. Unless other- wise stated, use the standard Solow model assumptions about national production, spend- ing/saving, and capital accumulation. a) The contribution of physical capital to national production in advanced countries such as the United States may be overstated. Some empirical estimates suggest it is closer to 20%, rather than 33% (the one-third that pops up in the production function), which implies the appropriate (per effective worker) production function...

If you consider the Solow model, once a country reaches the steady state, there is no...

If you consider the Solow model, once a country reaches the steady state, there is no growth. What is the only possible source of continuous economic growth in the Solow model? Explain. Please type your answer

Consider an economy at the steady state according to the Solow Growth Model with a per...

Consider an economy at the steady state according to the Solow Growth Model with a per capita production function where n=0.04, d=0.08, and s=0.3. Suppose a change in the age profile of the population leads to a reduction of the savings rate to s=0.28. As a result, consumption initially falls and continues to decline until reaching the new steady state. consumption initially rises and continues to increase until reaching the new steady state. that is above the original. consumption initially rises...

Consider the Malthusian growth model. Assume that initially a country is in a situation of steady-state,...

Consider the Malthusian growth model. Assume that initially a country is in a situation of steady-state, that is, with population growth equal to zero. Describe in words and illustrate graphically the effect of a decrease in productivity on a country's population size and per capita income in the short run and in the long run

Can the concept of "steady state" be applied similarly on drugs that follow first order and...

Can the concept of "steady state" be applied similarly on drugs that follow first order and zero order kinetics?

. Consider two economies: Economy A and Economy B. Both economies have the same population, supply...

. Consider two economies: Economy A and Economy B. Both economies have the same population, supply of fiat money, and endowments. In each country, the number of young people born each period is constant at N, and the supply of fiat money is constant at M. Young people are endowed with y units of the consumption good but receive nothing when old. The only difference between these two economies is that people in Economy A have preferences that lean toward...

Question