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

Normal population standard deviation, A normal population has a mean of 12....

A normal population has a mean of 12.2 and a standard deviation of 2.5. A) Compute the Z value associated with 14.3. B) What proportion of the population is between 12.2 and 14.3.?

IS-lm model, Derive the following equilibrium for the IS-LM model:

Derive the following equilibrium for the IS-LM model:

Robert''s new way vacuum cleane, Robert's New Way Vacuum Cleaner Company is...

Robert's New Way Vacuum Cleaner Company is a newly started small business that produces vacuum cleaners and belongs to a monopolistically competitive market. Its demand curve for t

State the monetary base and the supply of money, State the Monetary base an...

State the Monetary base and the supply of money - central bank It is not possible for the central bank to print and distribute money - that would increase their debt without i

How do reductions in government spending affect the economy, Usually the go...

Usually the government is very good at wasting money and resources so less spending, by the government helps the economy as those resources are allocated in areas that are more wel

Money supply, different between money multplier vs credit multplier ?

different between money multplier vs credit multplier ?

Real exchange rates, Real Exchange Rates (EXCH) is the next variable that w...

Real Exchange Rates (EXCH) is the next variable that will be analysed in this VAR. The reason for including exchange rates in the VAR is that they are an important channel through

Production Possibilities Frontier, A friend says that the economy will prod...

A friend says that the economy will produce inside the PPF curve (like pt E below) since we in the economy value saving, or for some other reason. You say this is incorrect. Why? U

Solow growth model, graph the central equation of the solow model. argue th...

graph the central equation of the solow model. argue that a steady state exists and that the economy will converge to this point from any initial starting capital stock

Using algebra find the equilibrium price, The demand equation for champagne...

The demand equation for champagne is given by P = 10 - Q. The supply schedule for champagne is given by P = Q. Note that P denotes price per bottle in dollars, and Q is quantity me

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