Homework answers / question archive / Use the Solow model to evaluate this question

Use the Solow model to evaluate this question

Economics

Share With

Use the Solow model to evaluate this question. You are the chief economic advisor to a small Caribbean country with an aggregate per capita production function of y - 3k". The savings rate is 6%, and the rate of depreciation is 10%. Population grows at a rate of 4%. There is no technological progress.
c. (2) If capital per worker equals four units (k=4), explain in words how the economy works its way toward the steady state. d. (3) If k-4, write down the equations for and find the numerical values of: (1) investment per worker; () break-even investment per worker, (ii) output per worker; and (iv) consumption per worker. Identify each of these on your graph (draw a new graph if necessary to see clearly). e. (2) If k-0, explain in words what happens. f. (1) How fast is output per worker in this economy growing in the long run? Explain how you know this. ?? &. (1) If the rate of technological progress in this country were 5%, at what rate would output per worker grow in the steady state? h. (2) Say that the economy is originally in the steady state identified in part b when population growth decreases to 2%. Explain in words what happens to the growth rate and level of output per capita, being sure to address what happens both in the short run and in the long run. 1. (2) Say that the economy is in its original steady state (part b), when a hurricane destroys 1/3 of its capital stock. How does this change the steady-state level of output per capita? j (2) While the Solow model does not directly include any government policies, name one specific government policy that could increase long-run growth in output (income) per capita as described by the Solow model.