the solow model: sAf(k)=(δ+n) k (Base your answers for this on the Solow model.) President Trump’s...

the solow model: sAf(k)=(δ+n) k

(Base your answers for this on the Solow model.) President Trump’s speechwriters once told him to say something like “my deregulation plan will increase the share of national output being used for investment, helping to permanently restore rapid economic growth (per worker).”

i. Do you agree it would help increase the growth rate of GDP per worker during his presidency?
ii. Do you agree it will raise growth of GDP per worker permanently?

Solutions

Expert Solution

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Following from Page6,
^ Qi) when depreciation rate is reduced at first - i.e. immediately after the (delta + k) line swings downward - there is a surplus of supply of loanable funds (aka savings) over demand for loanabale funds (to offset depreciation and equip new workers of the labor force with existing level of capital)

this is invested into capital formation, so during his presidency growth rate of capital per worker will be positive - which translates to a YES: growth rate of GDP per worker will increase during his presidency
Qii) But soon even the new (delta + k) line catches up with savings, and there is no surplus of investable funds to put towards new capital formation. So NO: growth rate of GDP per worker will not rise permanently

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Rahul Sunny answered 1 year ago

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