Question

Use a Solow growth model to show the impact of a decrease in labor augmenting technological progress E on the levels of k, y, c, and i. (show this using a graph, no explanation is required label you graph). a) What is the impact on the steady state levels of total income Y, total consumption C, and total investment I? b) What is the impact of on the steady-state growth rate of y, c, k, Y, K and C?

Answer 1

a)

Total Income, Total Consumption And Total Investment will decline by the amount equivalent to the decrease in labor augmenting technological progress.

-> y = f(K) --%=f(61) (8+n+g ) d'epreciation -Initial steady state → Line 8,4,8 g ² E *to i = Bf (R) -i'-s'f(R') - 16, k* k* kunst Art

b)

At steady state, the variables y, c, k remains constant and does not change. So, even after decline in the technological growth, the growth rate of y, c, and k will still be = 0

Growth Rate of Y at initial steady state (at point E) = g + n

where g = technological growth rate

n = population growth rate

After the decrease in E, the growth rate of Y will also decline = g1 +n

where g1 < g

Similarly, the Growth rate of K and C = g1+n

where g1 < g