What is the reason causing the saving rate at such level

Assignment Help Microeconomics

Reference no: EM132200710

Question: General Solow Model Supose initially the economy stays at the steady state k*, y*, i*, c*. At time t0, an imminent trade war makes people expect a higher inflation rate in the future. Higher inflation would benefit the borrower while hurt the lender. Therefore, rational people has less incentive to save. As a result, the saving rate s decreased to s'

(a) Draw the General Solow Diagram before t0. Label each curve as their associated function of kt.

(b) Locate the steady state of k*, y*, i*, c* on the Diagram.

(c) On the same diagram, draw the new curves after the shock occured at period t0. Label the new curves with a prime superscript on the top right corner.

(d) Locate the new steady state k*'

(e) Draw the time path of kt, yt, it, ct. (hint: there should be two cases for the time path of ct)

(f) Explain what is the golden saving rate, sgold in one sentence. Suppose s > s' > sgold, which of the two time path for ct you draw above is more likely to happen. What if s > sgold > s' and sgold > s > s' ?

(g) (Open Question) Do you think the saving rate in US is above or below the sgold? What is the reason causing the saving rate at such level? Could you make a policy proposal so that people could achieve a higher well-being by using General Solow Model to justify your argument.

Reference no: EM132200710

Questions Cloud

Frame number happens to be four times smaller : A paging system with a 256address page size, using a page table in which the frame number happens to be four times smaller than the page number.

Determining the square root of a number via recursion : Determining the Square Root of a Number Via Recursion For this programming project you will develop an recursive function to ?nd the square root of a number.

What is the income velocity of money : If the production increases by g% and nominal interest is still, at what % would the real money balance increase? What is the income velocity of money?

How well did the media cover the midterm elections : PSCI 1121: Which specific outcomes/ races seemed to be the most important/ significant? How do those specific races impact the overall outcome of the mid-term?

What is the reason causing the saving rate at such level : Do you think the saving rate in US is above or below the sgold? What is the reason causing the saving rate at such level?

Determine the slope and shape of the curves : Graph the individual marginal benefit and marginal social benefit curves of a Teibout community (you can determine the slope and shape of the curves).

What is the impact of money on political parties : What is the impact of money on political parties we have studied, since the beginning of the American constitutional government?

In which program do you feel you are strongest : In which program do you feel you are strongest? What do you think you could do to bolster your strength in the other programs?

How does remote access permission works : How does remote access permission works? What could interfere with the ability to access a user's system?

User Account

All Pages