What happens with no diminishing returns? Consider a Solow model where the production function no longer...

What happens with no diminishing returns? Consider a Solow model where the production function no longer exhibits diminishing returns to capital accu- mulation. This is not particularly realistic, for reasons discussed in Chapter 4. But it is interesting to consider this case nonetheless because of what it tells us about the workings of the Solow model. Assume the production function is now Yt = AKt. The rest of the model is unchanged. (a) Draw the Solow diagram in this case. (b) Suppose the economy begins with capital K0, and show how the economy evolves over time in the Solow model. (c) What happens to the growth rate of per capita GDP over time?

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Rahul Sunny answered 1 year ago

2. Consider the Solow growth model. Suppose that the production function is constant returns to scale...

2. Consider the Solow growth model. Suppose that the production function is constant returns to scale and it is explicitly given by: Y = KaL1-a a. What is the level of output per capita, y, where y = Y/L? b. Individuals in this economy save s fraction of their income. If there is population growth, denoted by n, and capital depreciates at the rate of d over time, write down an equation for the evolution of capital per capita, k,...

a) In the Solow growth model, capital exhibits diminishing returns. In a basic endogenous growth model,...

a) In the Solow growth model, capital exhibits diminishing returns. In a basic endogenous growth model, capital exhibits constant returns. What is the main implication of these differences to economic growth of a country/countries? b) Suppose unemployment rate in Sweden this year dropped to the lowest level ever than before. Oddly, employment rate also fell from the prior year. How was this possible?

Consider a model with no savings, a production function with positive, but diminishing marginal product and...

Consider a model with no savings, a production function with positive, but diminishing marginal product and a household with a utility function utility = u(c, l), where c is consumption and l is work effort. The marginal utility from consumption is positive, MU(c)>0, but the marginal utility from work effort is negative, MU(l)<0. Both marginal utilities diminish. In this model argue that the utility household will adjust its consumption and work effort until the marginal utility benefit for an additional...

Consider the Solow Growth model, and assume there is no technological change. The production function is...

Consider the Solow Growth model, and assume there is no technological change. The production function is F(K,L) = K^aN^1−α, α = 1/3. Population growth rate n = 0.01. Capital depreciation δ = 0.09. Savings rate s = 0.4. (a) Write down the law of motion for capital per worker. (b) Compute the steady state capital per worker and output per worker. (c) Suppose a book called Let’s Party Like There is No Tomorrow reduces the nation’s savings rate to 0.35....

In the Solow growth model, capital exhibits diminishing returns. In a basic endogenous growth model, capital...

In the Solow growth model, capital exhibits diminishing returns. In a basic endogenous growth model, capital exhibits constant returns. What is the main implication of these differences to economic growth of a country/countries?

Define the production function. Discuss why the production function exhibits diminishing returns. What is job rationing...

Define the production function. Discuss why the production function exhibits diminishing returns. What is job rationing and how does it relate to unemployment? What factors can lead to job rationing? Briefly explain these factors.

Consider the Solow model economic production function, Y = A * K^a * L^(1-a) Assume the...

Consider the Solow model economic production function, Y = A * K^a * L^(1-a) Assume the following initial conditions: A = 1.2 a = 0.27 K = 16 L = 112 Additionally, you know that depreciation rate is 11 % and the savings rate is 12 %. Assuming no changes in any of the parameters, besides the change in K over time, what is the long-run equilibrium level of output?

Assume a standard Solow model where production function has normal features. Suppose that the economy is...

Assume a standard Solow model where production function has normal features. Suppose that the economy is initially in a steady state. Then at period t = t0 there is a one-time doubling of the labor force (e.g., due to immigration) and labor force is assumed to stay at its new level permanently (note: population growth is zero after the initial jump in the labor force). Show graphically and explain how this will impact the steady state capital stock per worker...

1 What is the Law of Diminishing Returns? Draw an Isoquant where the law of diminishing...

1 What is the Law of Diminishing Returns? Draw an Isoquant where the law of diminishing returns holds. 2 What figure is similar to the isoquant, but instead of inputs it maps out all the possible combinations of outputs that can be produced with a given set of inputs? Draw the associated graph. 3 What is the difference between risk and uncertainty? 4 Assume a domestic market imposes a tariff on foreign goods. How will this affect the domestic price?...

8. Can a production function have diminishing marginal returns to a factor of production and constant...

8. Can a production function have diminishing marginal returns to a factor of production and constant returns to scale simultaneously? Why or why not?

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