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The Solow model with population growth and labor-augmenting technological progress predicts balanced growth in the steady-state. Growth rates of which variables are predicted to be balanced (i.e., will be equal) in the steady-state?

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Joshua Stredder
Joshua StredderLv10
28 Sep 2019
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Related questions

Many demographers predict that the United States will have zero population growth in the twenty-first century, in contrast to the average population growth of about 1 percent per year in the twentieth century. Use the Solow model to forecast the effect of this slowdown in population growth on the growth of total output and the growth of output per person. Consider the effects both in the steady-state and in the transition between steady states.

A country is described by the Solow Model with a production function y =k1/2. Now suppose k is equal to 400. Now suppose that the fraction of output invested (or saved) is 50%. Assume that the depreciation rate is 5% and population growth is 0%.

Is the country at its steady-state level of output per worker above the steady-state or below the steady-state? Show how you reached your conclusion.

 

1. What does the term s*Y represent in the capital-accumulation equation of Solow growth model?

a) The labor-income share of GDP.

b) Net investment.

c) Gross investment.

d) The net change in the capital stock from one year to the other.

2. In the Solow growth model, suppose that the savings rate is 25%, the depreciation rate is 10%, the current capital stock is 10 trillion $ and current output of a country is 4 trillion $. What will the capital stock of this country be in the following period?

a) 10 trillion $.

b) 11 trillion $.

c) We cannot tell since we are not given information about technological progress.

d) We cannot tell since population growth is not known.

3. Consider a country which starts with a capital stock below its steady-state level in the Solow model (without technological change). Why is growth slowing down over time for this country?

a) Population growth is becoming stronger over time since the population is growing, which makes it harder to accumulate high levels of capital per capita.

b) A country cannot maintain the same savings rate forever, so investment must decrease at some point.

c) The more capital there is, the more of it depreciates. As the country becomes richer, it becomes ever harder to replace depreciated capital.

d) There are diminishing returns to the factor capital. Thus investment, capital and GDP per capita grow by ever smaller amounts as the country becomes richer.

4. Suppose Pakistan has a higher savings rate than Iran. Both start out with the same capital per worker. All other parameters are the same for both countries (population growth and depreciation rate). The Solow growth model (without technological change) predicts that...

a)

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