Question

1. Exercise 1. Predicting steady states and growth rates from Solow Model In this exercise, assume a = 1/3. Answer the following questions using the Solow model without population growth. a) First, assuming no differences in TFP. Assume that countries are in steady state. Following the Solow model, use the data in the table to predict the ratio of per capita GDP in each country relative to that in the US. Data Data Data Model (assume A = Aus) predicted Yssi/ss,US (Relative to U.S.) Countries Saving rate S Depreciation di Per capita GDP, 2014 dollars 141,841 162,691 8,084 United States Switzerland Kenya 25% 32% 11% b) Now, assume that the TFP in each country is different. Find the ratio of TFP in each country relative to the US that would fit the data perfectly. Model Countries A "residual" (Relative to U.S.) United States Switzerland Kenya

Answer 1

Griven: Predechng Staoly slaty and grouth oaty slow modkl Th ty eecise assume a,/3 . qukon ing the saloo moded ithout Populakon growth a) Foyt auming no differne in TFP. Aume tha counhicy are in steady Stat Heore A8sume xi Accodng to the soloo model At equilibikim Si y 9,k _ki A k A1S AiSi 9i uith u group pra capital = (u1, gu b) Nous aume that the TFP in each counhy is diffeocd. Frol the TFP in each (ouny oclahive wy that uould t the data peofecHy To t the caa PefecHy Heone: A 1087.

A/ Aus 087.9 3i Heothe dada prei caprlal G0P guen 'in table-1 Table-a c) Now,imaginr that ue obtaund det a on DfP. USirg thiy dala in TFe Computi the stady sate implied by the Eolos model. Heoe eSlstat implicd by solow maddl it Table-3 AOa5 O. 912a5 u1841 A a3 As = u18u a 5 Aumurg A Aus10879 कापन) usi ng dus from (table-4)

ruy pefecty the dada shoun in d) Frally Tmagirc tha thy eerruse and hat you belive in the 80low modlel He The diffevenee in achual and pedickd dada chffeed becaye of TFe, TFe not qual to te fe hat Rt the data acc odiny ayume the counhicy ue qual in sleody dali. to Solow model xThe soloo mrodel predic duu o horyackon dy namuc the bebus a counhy branfer nfrom it steady Sub Arrong then Suitzeland is much highon han st achua output Ss of Than Suittenlard usithgoo fostea than all othea ounhi. to0 the table modet CA1- AuS Table- Felautiue Pror Saving's eheia hon) Copital Counhiy Predicted pee ati Gop Capital Gop T 0.5 41841 US Suwitheo land 448155 6.32 kenya 0 a015u 0.11 0.

Table-a A1 Cocorhics esidual US Switzea land c8560584 kenya 033659 Table-3 Paedicted yi Cowrhig Ai US aoco 3535553.39 Swi tzer land 5a8488 59 kenyo 356 749. 3a4