Customer Service Chat
Get quote & make Payment
solow model, Macroeconomics
Q1. The poorest countries in the world have a per capita income of about $600 today.
We can reasonably assume that it is nearly impossible to live on an income below half
this level (i.e., below $300). Per capita income in Australia in 2010 was about $60,000.
With this information in mind, consider the following questions.
(a) For how long is it possible that per capita income in Australia has been growing
at an average annual rate of 2% per year? (2 points)
(b) Some economists have argued that growth rates are mismeasured. For example, it
may be difficult to compare per capita income today with per capita income a
century ago when so many of the goods we buy today were not available at any
price. Suppose the true growth rate in the last two centuries was 3% per yearrather than 2%. What would the level of per capita income in 1850 have been in
this case? Is this answer plausible?
Q3. In this question, we are going to do some “normative” economics (i.e., “what ought
to be”) instead of “positive” economics (i.e., “what is”). Specifically, we will examine
whether the six countries in Q2 are investing too little or too much for the benefits of
their future generations. For this question, again consider the Solow model with labour
share of 2/3rds.
(a) Show mathematically that steady-state consumption per capita can be expressed
as c* = A(k* )1/3 - dk* . Show your workings. (2 points)
(b) Maximize steady-state consumption with respect to steady-state capital per
capita—i.e., solve for ?c*
?k* using the chain-rule in calculus that ?y
= axa-1 for a
function y = xa . Denote the steady-state level of capital per capita that maximizes
steady-state consumption per capita as kGR , where GR denotes “Golden Rule”
(see below). What is kGR as a function of the productivity parameter and the
depreciation rate? (2 points)
(c) Noting that steady-state capital will always be k* =
for this model (why?),
what s will maximize steady-state consumption (i.e., what value for s will make
k* equal to the steady-state capital per capita that you solved in part (b))? (2
(d) Macroeconomists refer to the value of s solved for in part (c) as the “Golden
Rule” (i.e., “Do unto others,…”) investment rate. The idea is that investment at
this rate will maximize consumption for future generations. Meanwhile, a lower
investment rate means that households are consuming more today at the expense
of future generations, while a higher investment rate means that all generations
are investing too much and not enjoying consuming enough of the fruits of their
labours. Based on the solution in part (c) and the investment rates in Q2, which
countries are investing too little, too much, or just right, at least according to the
Solow growth model and the Golden Rule investment rate? (2 points)
Posted Date: 8/5/2012 12:33:54 AM | Location : United States
Ask an Expert
solow model, Assignment Help, Ask Question on solow model, Get Answer, Expert's Help, solow model Discussions
Write discussion on solow model
Your posts are moderated
Write your message here..
Revealed preference approach, REVEALED PREFERENCE APPROACH The downward...
REVEALED PREFERENCE APPROACH The downward slope of the demand curve was justified on the basis of utility derived by the consumer. But specification of consumer tastes in form
Objective of empirically analyses, The aim of this paper is to observe and ...
The aim of this paper is to observe and interpret the correlations between oil price changes, and changes to key macroeconomic indicators. From this we will be able to observe if t
For you and other mexican farme, For you and other Mexican farmer-ranchers ...
For you and other Mexican farmer-ranchers rice is a substitute good for corn as basic food stuff for human consumption. If the market price for feed corn and rice were the same bef
Price elasticity of demand, has determined that the price elasticity of dem...
has determined that the price elasticity of demand for two customer segments (Coach and Business Class) is -1.35 and -2.50. Based on their expectations of profitability, Kashian r
Graph, show on the market for cheese that impact of what happened in the mi...
show on the market for cheese that impact of what happened in the milk market.
Probability that the stocks return, Suppose that an individual stock's retu...
Suppose that an individual stock's return is normally distributed with a mean of 11% and a standard deviation of 5%. What is the probability that the stock's return will be less th
Determine the exchange rate, Determine the exchange rate When a currenc...
Determine the exchange rate When a currency is freely floating, the central bank doesn't have to set monetary policy to alter the external value of the currency unless instruct
#title., .Clearly explain how net foreign investment links the market for l...
.Clearly explain how net foreign investment links the market for loanable funds and the market for foreign currency exchange. Make sure you define net foreign investment in your an
#titlePrinciples of Macroeconomics.., Challenges to the American Labor Forc...
Challenges to the American Labor Force
Goods market and factors market, Goods Market and Factors Market: Good...
Goods Market and Factors Market: Goods market is the market where goods are bought and sold for the purpose of consumption Factors markets are the markets
Accounting Assignment Help
Economics Assignment Help
Finance Assignment Help
Statistics Assignment Help
Physics Assignment Help
Chemistry Assignment Help
Math Assignment Help
Biology Assignment Help
English Assignment Help
Management Assignment Help
Engineering Assignment Help
Programming Assignment Help
Computer Science Assignment Help
Why Us ?
~24x7 hrs Support
~Quality of Work
~Time on Delivery
~Privacy of Work
Human Resource Management
Literature Review Writing Help
Terms & Conditions
Copyright by ExpertsMind IT Educational Pvt. Ltd.