Consider this type of growth: On balanced growth path, an economy grows at 1.8% a year....

Consider this type of growth: On balanced growth path, an economy grows at 1.8% a year. 0.8% comes from population growth and 1% comes from technology improvement. What are the rates of change of the variables?

1. Number of workers? 2. Rate of depreciation? 3. Output per worker? 4. Volume of capital? 5. Savings rate?

Expert Solution

1-number of workers is declined by .8% because in the growth the contribution of population growth is .8 %.

and there is negative relationship between population growth and economic growth and as there is positive growth in economy which implies the populations would have declined.

2-rate of depreciation: if rate of depreciation is more than there would be the less amount of economic growth so as there is the positive economic growth the rate of depreciation would be negative it implies that there is the technological improvement which is given as 1% in the question.

3-output per worker is increased by 1.8% because the economy has a growth rate of 1.8 % if we divide it with the whole of population, all the individual must have attained 1.8% growth in the output production.

4-volume of capital-again as there is 1.8% growth in economy so there would be an increase in the amount of capital which we can give as 1.8% .

5 saving rate-it it can be assume that there is positive saving trade because a savings has great role in the balanced growth theory.

We can assume that there is 1.8 % of savings rate.

Rahul Sunny answered 2 years ago

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