Question

In: Economics

Macro Economics Table contains some data about the economy of Potsteel. Assume that this is a...

Macro Economics

Table contains some data about the economy of Potsteel. Assume that this is a complete record of the economy. Some parts of this question ask for numerical solutions. You must include both the final answer, and how you found that answer

Year

Quantity of Potatoes Produced

Price of Potatoes

Quantity of Steel Produced

Quantity of Steel Exported

Price of Steel

Unemployment

Benefit

2016

100

1

200

100

2

200

2017

110

1.1

210

80

2.1

160

2018

90

1.1

180

60

1.8

300

2019

140

1.2

250

40

2

220

The data suggests that Potsteel suffered a small recession in 2018. Using the Solow-Swan model, explain why we might expect an economy just coming out of a recession to grow more swiftly than usual

Solutions

Expert Solution

It can be seen from the above table above that prices of both potatoes and steel have fallen in the years 2018. This is because of the small recession that occurred in the year 2018. According to Solow-Swam Model, the economy just coming out of a recession will grow more swiftly than usual because as the economy just comes out of recession , the investment or savings rate in the economy will be higher than depreciation rate because government takes various stimulus packages to increase private investment in the economy to help the economy come out of recession is a swift manner and thus increase overall economic growth in the country. This will increase investment rate far higher than the depreciation rate in the economy and thus increase capital investment and increase capital per worker and output per worker at a higher rate as compared to the case when the economy is in equilibrium position.

Thus, as per the Solow-Swam Model, an economy just coming out of recession will grow more swiftly than usual.


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