User Account

All Pages

solow model, Macroeconomics

Assignment Help:
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
?x
= 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* =
sA
d
!
" #
$
% &
3/2
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
points)
(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)

Related Discussions:- solow model

#GDP, There are three firms in an economy: A, B, and C. Firm A buys $450 wo...

There are three firms in an economy: A, B, and C. Firm A buys $450 worth of goods from firm B and $260 worth of goods from firm C, and produces 260 units of output, which it sells

Cross-price elasticity of demand, You are the manager of a firm that receiv...

You are the manager of a firm that receives revenues of $50,000 per year from product X and $80,000 per year from product Y. The own price elasticity of demand for product X is -3,

Demand for money and gdp, Q. Demand for money and GDP? The demand for m...

Q. Demand for money and GDP? The demand for money also relies on the GDP as GDP is closely associated to national income. If you choose to hold a fixed proportion of your wealt

Consumption function in the as-ad model, Q. Consumption function in the AS-...

Q. Consumption function in the AS-AD model? Consumption. Suppose that P increases by say 10% whereas real GDP (Y) is constant. Nominal GDP and nominal national will now have

Principles of macroeconomics, what is the company lidted in NASDAQ that is ...

what is the company lidted in NASDAQ that is included in the dow jones industrial average

Theory of consumption, briefly explain with keynesian consumption?

briefly explain with keynesian consumption?

Real gdp or nominal gdp, Which is a better measure of economic well-being r...

Which is a better measure of economic well-being real GDP or Nominal GDP? Ans) Well real GDP takes into account the inflation rate and therefore is more accurate at recording th

Determine the exchange rate, Q. Determine the Exchange rate? Exchange r...

Q. Determine the Exchange rate? Exchange rate is determined by the ratio of domestic price level to the foreign price level. If, for instance domestic prices increase by 10% wh

Describe in short about money in economics, Describe in short about Money ...

Describe in short about Money "Money" in economics is actually not as simple to understand as you may think and many use the term money in a way inconsistent with how it's defi

Probability of being dealt any two cards greater, 1) Suppose you are dealt ...

1) Suppose you are dealt two cards from a standard deck of playing cards. a) What is the probability of being dealt a pair of aces? b)There are 13 possible pairs possible (Ac

Write Your Message!

Captcha
Order Assignment

Featured Services

Order Now

Popular Subjects

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd