Question

QUESTION 5 Suppose that instead of the investment rate it is the population growth rate that increases. According to the Solow growth model in the new steady state income per worker would be higher. income per worker would remain unchanged. income per worker would be lower. we cannot say what will happen to income per worker. 5.00000 points Saved QUESTION 6 Which of the following statements concerning the increase in the rate of growth of the labor force in the previous question are implied by the Solow growth model? The growth rate of income per worker in the new steady state will be higher. The growth rate of income per worker in the new steady state will remain unchanged. The growth rate of income per worker in the new steady state will be lower. The growth rate of income per worker during the transition to the new steady state will be higher than in the original steady state. The growth rate of income per worker during the transition to the new steady state will be lower than in the original steady state. 5.00000 points Save Answer QUESTION 7 Which of the following statements concerning the simple Solow growth model with population growth are correct? The model can account for most of the variation across countries in income per worker as the result of differences in steady state capital per worker and population growth rates. The model can account for less than half the variation across countries in income per worker as the result of differences in steady state capital per worker and population growth rates. The model can account for the variation across countries in growth rates of income per worker as a steady state phenomenon. The model cannot account for the variation across countries in growth rates of income per worker as a steady state phenomenon.

Answer 1

5. According to Solow Growth Model, Production is the function of capital stock and labour force which means production will increase if both capital stock or investment rate and labour force availability will increase. Mathematically Solow production function can be explained as follows:

Y = K^aL^b

where = multi factors variable, K = capital stock and L = Labour supply rate,a,b are constants and a + b = 1

If instead of investment rate, population rate increase, it means increase in the labour supply rate which according to Solow growth model, will decrease labour output ratio and as a result income per worker would decrease. Therefore, correct answer is income per worker would be lower.

6. Increase in the rate of labour supply rate with constant or declining investment rate will reduce the labour productivity rate acccording to Solow model which will also lower the income of labour. therefore, correct answer will be The growth rate of income per worker during the transition to the new steady state will be lower than in the original steady state.

7. The Solow growth function can predict income rate of labour supply rate in a steady state if multifactor variable, capital stock rate and labour output ratio is known. If Solow model applies to both developed and developing countries, which are in their steady states then following will be true

1. All developed countries will have high investment rates than developing countries
2. All developed countries will have decling labour supply rates in comparison to those of developing countries

Therefore, correct answer is The model can account for the variation across countries in growth rates of income per worker as a steady state phenomenon.