How much richer should country Z be then country X on account of having twice the capital per worker? (ignoring the effect of differences in Ā)

Group of answer choices

26%

100%

0%

700%

Part A:

These questions will be based off what we learned about the Solow growth model.

Please refer back to the information on country X:

Ā=10

K=64

L=27

Let's now refer to these numbers as "for period 1".

Further, suppose that the savings rate is 2% and the depreciation rate is 10%.

How much investment (savings) will take place for period 1? (make sure to find Y here; you have this in Question 1 Part A)

Part B:

How much depreciation will take place for period 1?

Part C:

What is the Capital stock in period 2?

Part D:

What is GDP in period 2?

Part E:

What was economic growth between periods 1 and 2 (express in percentage points).

Part F:

What is the steady state of K for this economy?

Part G:

What is the steady state of Y for this economy?

Part H:

Building off of our example from the interview with Giovanni Peri:

Suppose an economy is in steady state in period one, with Ā=1, K=1, L=1, with savings rate 5% and depreciation rate 5%.

These numbers also tell us that Y=1, Y/L=1, and that MPK=1/3.

There is a sudden doubling of labor between periods one and two. With L=2, what is Y/L? (using the new Y for period 2)

Part I:

What is MPK now?

Part J:

What is the new steady state of K?

Answer rating: 100% (QA)

Part A The amount of investment savings that will take place for period 1 is 2 of GDP Part B The am... View the full answer