Question: Consider the Solow model. Consider two hypothetical countries. Both have the same s, g, 6, same Cobb-Dou function y = k. At the moment, both


Consider the Solow model. Consider two hypothetical countries. Both have the same s, g, 6, same Cobb-Dou function y = k". At the moment, both have the same level of capital per effective labor k. Country 1, however, has lower population growth rate n than Country 2. Assume both are currently below their steady states. a. Draw the amount of inflow (sy) and the amount of outflow (n+g+8)k vs. k for both countries on the same graph. Indicate the steady states of both countries and the current position of both countries. b. Draw the rate of inflow (s - ) and rate of outflow (n + 9 + 6) vs. k for both countries on the k same graph. Indicate the steady states of both countries and the current position of both countries. c. Which graph (in (a) or in (b)) will help you measure the current value of y, for each country? Indicate the current values of y, for both countries on that graph, Which country has a higher current (transitional) y, ? Which country has a higher current (transitional) growth rate of Y/L (i.e. Vy/L)? Explain. Which country has a higher steady state growth rate of Y/L? Explain. (You need to show your explanations and works in order to earn points in this question.)
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
