Question

4. Getting to Know the Solow Model 4.1. During the misty season in Santa Cruz (June through August), the morning mist causes machinery to corrode more quickly than during other parts of the year. Which parameter in the Solow model would likely be affected by the mist? How would it change? What would the change do to the steady-state of the Santa Cruz economy? 4.2.The Indian village of Bairganalle has just discovered a new method of inter-cropping. Alongside rice, which they have been planting for centuries, they have begun planting in the same fields other crops that enhance the quality of the soil. As a result, their crops have higher yields even holding fixed the hours spent working in the fields and the capital they use in production. Which parameter in the Solow model would likely be affected by inter-cropping? How would it change? What would the change do to the steady-state of Bairganalle's economy? 4.3.The lower middle-class of Lagos has been hooked on a new novel about how hard work and thrift help a young woman rise to riches. Households, most of which run family businesses, have been inspired to spend less of their income on luxuries and instead to spend more on growing their businesses. Tailors buy more sewing machines, bakers buy more ovens, and carpenters buy better tools. Which parameter in the Solow model would likely be affected by the change in behavior? How would it change? What would the change do to the steady-state of Lagos's economy?

Answer 1

4.1) During the misty season in santa cruz( june through august) the morning mist the causes the machinery to corrode more quickly than during other parts of the year. The parameter that is used to solow model for this corrosion is known as depreciation and it is likely to be affected by the mist. The change is that it will increase during this season. The steady-state of santa cruz economy will be reduced by the higher depreciation.

4.2) Here the parameter that is used in solow model is production technology or total factor productivity is likely to be affected by inter-cropping, the change is that it will increase. It will increase the steady-state of Bairganalle's economy.

4.3) Here the parameter that is used in solow model is investment and it is likely to be affected by the change in behaviour and it is increased in this part. Higher investment and unchanged other parameters can increase the steady-state of Lago's economy.

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