Econ2102S2_Tutorial_2s[1]

80 134 027 036 strong the big differences in capital

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Unformatted text preview: al instead of 1/3, then diminishing returns are not as 10 1.80 1.34 0.27 0.36 strong. The big differences in capital now imply big differences in output per-capita. Implied Change in Growth Capital Rate (%)  ­0.40  ­0.34  ­5.13  ­0.29  ­4.85  ­0.25  ­4.57  ­0.21  ­4.29  ­0.18  ­4.02  ­0.16  ­3.75  ­0.14  ­3.50  ­0.12  ­3.25  ­0.10  ­3.02  ­0.09  ­2.79 Consequently there is not such an important role for differences in TFP. Notice the unlikely result for Ethiopia that implies its’ level of TPF exceeds that for the US. Suggests that a capital share of ! is not reasonable. You shouldn’t recommend the scrappage program as a means of stimulating the In 2000 dollars Relative to the US (US=1) other state economies. The(6) consequences are lower growth and a lower steady-state (2) (2) (3) (4) (5) k y k y y* Implied TFP (to match level of output. Meanwhile, if one of the goals of the scrappage program is to reduce the data) Country pollution,33,293would make more sense to directly target pollution through taxes or it US 79,865 1.0 1.0 1.0 1.0 Canada 26,904 0.952 0.808 0.96 0.84 s 76,026 Hong Kong ubsidies, 6,699 69,117 2 rather .865 0.802 directly destroy the capital stock. 0 than 0.90 0.89 Indonesia Mexico Kenya Ethiopia 6,468 18,740 1,414 328 3,642 8,762 1,244 635 0.081 0.235 0.018 0.004 0.109 0.263 0.037 0.019 0.15 0.34 0.05 0.02 0.72 0.78 0.77 1.18 Note that a key reason why the outcome here is so much worse than for the floods is that the higher depreciation rate is permanent, leading to a different steady state. Q4. Suppose the level of TFP in an economy permanently increases from to . (a) Assuming the economy starts in a steady-state, use the Solow model to explain what happens to the economy over time and in the long-run. (b) Draw a graph showing how output evolves over time and explain what happens to the level and growth rate of income per-capita. (c) Explain what would happen...
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