Question

28. Consider the Solow model with exogenous growth. Assume that because of global warming the depreciation rate increases. Illustrate the change in the steady state. What happens to the growth rate of standard of living in the new steady state?

29.Suppose the government of a small open economy passes an investment tax exemption to stimulate investment. Using the classical open economy model, what will the effects of this investment tax exemption?

30.Suppose a government decides to increase taxes Using the long-run model of the economy, graphically illustrate the impact of on GDP. Be sure to label the axes, the curves, the initial equilibrium values, the direction curves shift, and the terminal equilibrium values.

Answer 1

Q.28

Ans.

Solow developed a model that explained the responsibility of labor, capital, and technology (complete factor benefit) to money related growth.
The growth accounting equation shows that the pace of growth of potential yield approaches growth in technology in addition to the weighted normal growth pace of labor and capital.
Growth in potential GDP = Growth in technology + WL (Growth in labor) + WC (Growth in capital)
The model shows that the economy's beneficial cutoff and potential GDP increase for two reasons, accumulation of such commitments as capital, labor, and rough materials used in progress, and discovery and utilization of new headways that make the commitments to the creation methodology continuously helpful—that is, prepared to convey more product and adventures for a comparative proportion of data
The condition shows that enhancements in technology are a higher priority than capital in increasing an economy's expectation of living.
In the given inquiries we have been educated that in light of the an unnatural weather change deterioration rate has expanded.
This will contrarily affect the way of life. Also, due to higher devaluation rates and unavoidable losses to capital, the best way to support growth in potential GDP per capita is through mechanical change or growth in absolute factor productivity.