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

Description of var, In order to observe the correlations between each varia...

In order to observe the correlations between each variable, the most effective method to use is Vector Autoregression (VAR). VAR estimation uses a system of simultaneous equations

Process to control inflation rate, Process to control inflation rate Th...

Process to control inflation rate The belief that control of inflation must be the primary economic objective of government can be traced back to neo-liberal revolution that st

Relationship between number of hours worked and unemployment, Q. Relationsh...

Q. Relationship between number of hours worked and unemployment? In all models we presume a negative relationship between number of hours worked and unemployment. If number of

Theory of consumption, briefly explain with keynesian consumption?

briefly explain with keynesian consumption?

Hurricane or flood or a pandemic strikes, When a hurricane or flood or a pa...

When a hurricane or flood or a pandemic strikes a country, who is most likely to respond first?

Long-run labor demand, Long-Run Labor Demand: Graph an increase in the...

Long-Run Labor Demand: Graph an increase in the wage when only labor is a 'normal' input to production. Graph an increase in the wage when both inputs are 'normal'

Find the nash equilibrium and total quantity , Consider a model of Cournot ...

Consider a model of Cournot competition as studied in class, with 2 firms and a linear inverse demand function P(Q) = a - Q (where Q = q 1 + q 2 is the total quantity produced by

Utility level and indifference curves, Consider the utility function u(x1, ...

Consider the utility function u(x1, x2) = x1x2. (a) Graph the indifference curves for utility levels 1 and 2. (They are symmetric hyperbolas Asymptotic to both axes). (b) Graph the

How do tax cuts affect the economy, Tax cuts get better the economy by givi...

Tax cuts get better the economy by giving the people more spending power and higher consumer confidence, which leads to them spending more of all of their income which lead to more

Time inconsistency of monetary policy, I will need to upload a file as the ...

I will need to upload a file as the questions are bit too long to type

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