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..
What is an oligopoly?, Oligopoly is a marketplace where the deliver is cont...
Oligopoly is a marketplace where the deliver is controlled by a small group of companies. In this condition, the actions of single company will have a material effect on the whole
What is treasury bills, What is Treasury bills In most countries you wi...
What is Treasury bills In most countries you will find many types of government bonds. An important distinction is the duration of the bond, that is, the difference between the
Differentiate between actual and potential output, Differentiate between Ac...
Differentiate between Actual and Potential output. Actual output is that level which economy in fact produces. In contrast, potential output is the aggregate capacity output o
What is money and what is not money, Q. What is money and what is not money...
Q. What is money and what is not money? If you are trying to conclude if something is money, basically consider whether it would be accepted in most stores as payment. Then you
Determine the experimental design, An ecologist is interested in the possib...
An ecologist is interested in the possible negative effects of marinas and boat mooring areas on the abundances of fish. Having read Hurlbert's paper about pseudoreplication, he de
Economic functions of money - a medium of exchange, Economic functions of m...
Economic functions of money - A medium of exchange This is its most important role. Without money we would live in a barter economy where we would have to trade goods and
What is the monopole and dipole moment, Charge is distributed with constan...
Charge is distributed with constant volume density D throughout the rectangular box with length a, width b and height c. a) what is the monopole moment of this system. b) What i
Define public good, A public good: A) Generally results in substantial n...
A public good: A) Generally results in substantial negative externalities. B) Can never be provided by a nongovernmental organization. C) Costs essentially nothing to prod
What are the costs of economic growth, What are the costs of economic growt...
What are the costs of economic growth? Economic growth can result also into: • Increases within pollution noise and congestion • Unnecessary depletion of non-renewable r
Elucidate elasticity of supply using the midpoint formula, An attorney supp...
An attorney supplies 40 hours of work per week when her fee is $100 per hour but supplies 60 hours of work per week when her fee rises to $120 per hour. Using the midpoint formula,
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
Follow Us |
T & C
Copyright by ExpertsMind IT Educational Pvt. Ltd.