Romerl Model Problems and Solutions

Romerl Model Problems and Solutions - Candidate Answers...

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Candidate Answers Homework #6 ECON 402 – Spring 2014 1. Discuss the following proposition: “An increase in the saving rate will increase the equilibrium capital-output ratio and so increase both output per worker and the rate of economic growth in both the short run and the long run.” An increase in the saving rate will increase the equilibrium capital-output ratio, and therefore the steady-state (i.e., long run) per capita output. In the absence of technological progress, the steady-state growth rate is zero, however. In the short run, however, the rate of economic growth does increase as the economy moves to its new, higher, steady state. This all assumes that one is talking about the Solow growth model. If this is an endogenous growth model, then increased saving can lead to increased technological progress, and therefore faster (positive) economic growth in the long run. In this case, the short run impact on the rate of growth is ambiguous, as it depends upon the economy’s
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  • Spring '14
  • Wassell
  • Economics, per capita

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