The Solow growth model has been one of the benchmark models of economic studies. Solow model of economic growth is considered as a turning point in the basic concept of economic study and holds an auspicious position among the greatest economic concepts. The Solow growth model states that, the ratio of labor in proportion to the capital goes up when there is a sustainable investment of capital which leads to a sustained increase in the growth rate in the economy. This may lead to a decline in the marginal product of the additional units of the capital which ultimately leads to the economy on the path of exogenous success in the longer run.
Answer (a): Income tax is critical to the Government machinery as it is the most trusted and valuable source of income for the Government. However, income tax has also been seen as resulting in to the loss of valuable capital for the common man. If the Government of Canada introduces a tax-free saving bank account for the people, it means that, now the people of Canada can have an account from where no money would be deducted as interest charges and they would only earn interest from this account once they have a substantial amount of deposit. This step by the Government would ensure that the amount of capital in the hand of the people would increase. If we look at the macro picture, we can understand the huge impact of this step by the Government. If the savings of the people increases, the tendency to invest in the market also increase. Along with the tendency to invest in the market, there I also a rise in the tendency to consume more products form the market. What these tendencies do, is that they pull out more money from the hands of the people and flush them in to the market. This increase in the capital influx in to the market leads to the demand rise in the economy, which then leads to the employment of more workers as laborers to meet the required demand. The laborer earns more wages and the wages also come out as consumption expenditure and further investment in the market, which further leads to a cycle of increased and productive growth in the economy.
Answer (b) : Answer (b): Canada has had a history where the male has been he dominant player in the market. This means that the contribution of the females in the market set up and economic institutions and forces has been comparatively lesser. If the Canadian female participation in the market forces is expected to continuously increase in the coming years, this would mean that the market will see a huge influx of exogenous capital. This will be over and above the normal influx of capital which the males usually do in to the market. Increase female participation will result in to the savings of the females to come out in to the market and will thereby result in to the interest in the economy decreasing. This will lead to an increase in the demand forces, thus pushing the manufacturers to increase more of their productivity. This requirement will need more of the labor force being employed, which in turn will increase the wages of the workers. This increase in the wage will further come out in the market tin the firm of consumption expense and further investment, this creating a cycle of prosperous economic growth.
Note: using the solow growth model without population growth Using the Solow growth model, discuss the...
Answer the following questions using the basic Solow growth model, without population growth or technological progress. (a) Draw a diagram with per worker output, y, consumption, c, saving, s and investment, i, on the vertical axis and capital per worker, k, on the horizontal condition. On this diagram, clearly indicate steady-state values for c, i, and y. Briefly outline the condition that holds in the steady state (i.e. what is the relationship between investment and the depreciation of capital?).
Use the basic Solow growth model, without population growth or technological progress. (1) Draw a diagram with per worker output, y, consumption, c, saving, s and investment, i, on the vertical axis and capital per worker, k, on the horizontal condition. On this diagram, clearly indicate steady-state values for c, i, and y. Briefly outline the condition that holds in the steadystate (i.e. what is the relationship between investment and the depreciation of capital?). (2) Suppose that society becomes thriftier,...
In the Solow growth model without population growth, if an economy has a steady-state value of the marginal product of capital (MPK) of 0.125, a depreciation rate of 0.1, and a saving rate of 0.225, then the steady-state capital stock per worker: Select one: a. is less than the Golden Rule level. O b. is greater than the Golden Rule level. c. could be either above or below the Golden Rule level. d. equals the Golden Rule level.
Consider the Solow growth model with depreciation rate and population growth rate n. The equation of motion for the capital stock and the per worker production function in this economy are given by: Ak= s(f(k) - (8 + n) k y= f(k) = k1/4 a). Suppose adoption of modern birth control methods in a developing country causes the population growth rate to decrease. What happens in the main Solow diagram: what curve(s) shin, what happens to the steady- state level...
According to the Solow model, the variable that determines the steady state growth rate of output per worker (Y/N) is A) the savings rate B) the population growth rate the growth rate of effectiveness of labor D) the level of government expenditure
In the Solow model with a positive rate of population growth n and technological progress z, the steady state level of total real output Y grows at the rate: a. n. b. zero. c. z. d. n + z. In the Solow model with a positive rate of population growth n and technological progress z, the steady state level of per worker real output y grows at the rate: a. n. b. zero. c. z. d. n + z. In...
3) [20 points] Consider the Solow growth model without population growth or technological change. The parameters of the model are given by s = 0.2 (savings rate) and d=0.05 (depreciation rate). Let k denote capital per worker; y output per worker; c consumption per worker; i investment per worker. a. Rewrite production function below in per worker terms: 1 2 Y = K3L3 b. Find the steady-state level of the capital stock, c. What is the golden rule level of...
A hypothetical economy can be described by the Solow growth model. Answer the below questions for this economy by using the following information: ? = √? saving rate (s) = 0.20 depreciation rate (&) = 0.12 initial capital per worker (k) = 4 population growth rate (n) = 0.02 a. What is the steady-state level of capital per worker? b. What is the steady-state level of output per worker? c. What is the level of steady-state consumption per worker? d....
Draw a well-labeled graph that illustrates the steady state of the Solow model with population growth. Use the graph to find what happens to steady-state capital per worker and income per worker in response to each of the following exogenous changes. a. A change in consumer preferences increases the saving rate. b. A change in weather patterns increases the depreciation rate. c. Better birth-control methods reduce the rate of population growth. d. A one-time, permanent improvement in technology increases the...
1. Let's review the setup of the Solow growth model with saving rate s, constant population growth rate n, and constant technology growth rate g Kt+1(1-8)K Lt+ 1 = (1 + n) Et+1-(1+g)E a) b) c) What is the steady-state capital and output per effective worker? (5pts) Solve for the golden rule level of capital. What is the saving rate then? (5pts) Many health experts have argued that malnutrition leads to reduced work capacity. Suppose in the Solow model, this...