1
Tutorial 2C
–
Economic Growth
Short Answer Questions
1.
In the Solow model, what determines the steadystate rate of growth of
income per worker?
2.
What data would you need to determine whether an economy has more or less
capital than in the Golden Rule steady state?
Applications
1.
An economy described by the Solow growth model has the following production
function:
y =
k
(a)
Solve for the steadystate value of
y
as a function of
s
,
n
,
g
and
.
(b)
A developed country has a saving rate of 28 percent and a population
growth rate of 1 percent per year. A lessdeveloped country has a saving
rate of 10 percent and a population growth rate of 4 percent per year.
In both countries, technical progress evolves at a rate of 2 percent and
the capital stock declines at a rate of 4 percent. Find the steadystate
value of
for each country.
(c)
What policies might the lessdeveloped country pursue to raise its level
of income?
2.
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 Spring '10
 MacoEconomics2
 Economics, Steady State, Coney Island, Rule steady state

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