Question

Question 5. (4 points each) Consider the Solow model in Chapter 6. Production function is given by 1 1 YA = A_KŽ NĚ The notations of variables are the same as the slides for Ch.6. The depreciation rate d is 0.1, the population growth rate n is 0.1, and the saving rate s is 0.2. The level of productivity is constant, so At = 2 all the time.

Here with the chp6 21

Answer 1

(5) The growth accounting equation is as follows:

GDP Growth = Capital Growth*(Weight of Capital Contribution) + Labor Growth*(Weight of Labor Contribution) + Technological Progress

Applying this when economy is at steady state;

labour The model i not able to differentiate bw face growth and population growth Predh fur: y = Kand by = lnk + (1-2) du L dlay Laluk + (1-2d lut dt Y a (1-6) Ľ = dt - K. Net inut 4uck Inder.. In cadey to understand how growth rate of oft u changing we have to know how rowth rate of capithe I b evolving overtime guvent the growth rate of labour force Capital acumulation equ. y Gross savings ... K'z sy- ŠK In cloud cloucy- - Sk: Bree All Y=271+ It means that how much . Y-6 = 1 .. .-C-G+T-T-I - to maistain the capitaik ! (1-c-T) + (1-4) = I - prt sau t pub san grose not &Y: no of machines added Sk! no of machines need to be added - Per capite version of Solow Model.. CC prodh fur en intensive forum Scanned with SamScanner

R: K lnk= lnk- en dlnk dt dluL at eledrale pe care te pare ť. S=sK_ # 84- (8+n) SY -(n+8) BY I Goose uirt per ey - (n+8) worker R - k: net iet per k = By - (n+8) k] worker! key eqn og solow model (n+8) k breakeven level of nut per worker In addition for every worker there are n. new workers added to the iconany each of whom requires k emits of capital to kep capital Per worker unchanged br o nn Kino of machines added (per worked u mou than the ( no q machines need to be ř adder per wollen so capital & pei worker will stilu steady Istati k* i reached 4 Iny worker A hok Tysk* concave prod" fun] Oegal Ska i the dampened version of Ra curve (+6) K " the straight ture from eign with a Scann Hofhith equal to has .. . Ses CamScanner

į → Charactersing the iconaing at the steady state. 0 The model predicts that at the steady state & we constant. á llú zero- dukt @ yake lny = x lnk * RX (0) luk- luk- en ... denk at ag dloL dit at & t enk 0 kn 4 In Y-ln L . th- Tes Scanned with CamScanner

for y Derive the expression He keele tuleb Nttt How large ů the effect of an inerease in saving rate ono steady state level of output per worker 14+13 (1-3) K+ + It Ketu : 61-8)kt +SYt - Ket (1-8) Kt & Yt Meti =(1-8) Kt + $Y Ttn) Nt Kette 11-898t +_ 34t Prinzo) Ntt Nt Kth: (1-5) Rt + byt At the steady state state R4+1 = Rt. he Cl-SI R + 8 ka Ris (3) 2d-1 dy " 770 that would What is the so consumpter mar de consumption per c*:(1-5) c? =(1-5)/11- savings rate Worker? CamScanner

sfint) + (1-3). Bi kt = f (6) (n+8) kot Rot sk ktk YAO AKO MIN c - -S (+ 2)[f4) - - - oh - [llen)&7? During transition, the lower is the capital laba rako, higher the short hur growth rate Absolute convergence The transitional gowth rate of a percapita income a poorer countri (untries with low & ratio) will be higer than that of rich countries/ hêgher k/ ratio) and ventually they will converge to the same level of per apita Pheomet This propelition 4 strongly rejected by the data ca for au iconomies are the same. conditional convergence Among a group of countries which are limita re they have Lunsilar values of in and a et the lativeld poorer countries who grow faster and eventually the ser capie insound 4 au thort countries will rege But tas kuponu u not hipful to ex eain the farbetet ferides per capillaire amery her hand your countries Scanned with CamScanner