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capital accumulation. The path There is a direct
effect via the production function and then a second effect that comes from higher
like the following.
Y*(0)
capital accumulation. The path of output (or output percapita) over time will look like
the following. Y(1) T
(c)If A growths at his vertical section shows the direct effect on output. stock also grows at a constant rate.
a constant rate then the capital
Y*(0) (d)An increase in A looks like it is a free lunch – there is no cost to it. In the case of an
increase in the investment rate, it has to come at the cost of a lower (initial) level of
(c)If A growths at a constant rate then the capital stock also grows at a constant rate.
consumption.
(c) A looks like it is a free lunch – there is no cost to u In the case of an
(d)An increase inIn the Solow model, when A it. ndergoes a onetime increase, capital accumulation
increase in the investment rate, it has to come at the cost of a lower (initial) level of
consumption.
Q5. occurs on the transition path. But if A growths at a constant rate then capital
accumulation will continually occur. " hus output will grow continually because of
T"
Q5.
(a) Use the production function !
and the rules for growth rates (Jones Ch.
ihe production functionA ! nd b"ecause of capital accumulation that results from the increases in
ncreases in a " and the rules for growth rates (Jones Ch.
(a) Use t
3, page the growth rate of output as agrowth the growth rate of
53) to write the function of rate of output as a function of the growth rate of
3, page 53) to write
A
capital. . We can go further and argue that because K/Y would be equal to s/d in steady
capital.
(b) Combine the above equation with the following one
state, capital and output cannot continuously grow at different rates or else the ratio
(b) Combine the above #
equation with the following one
would converge ! zero or$ infinity. Thus, they must grow at the same rate.
to
"
to obtain a solution for the growth rate of percapita GDP as a function o...
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This document was uploaded on 03/15/2014.
 Spring '11
 Macroeconomics

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