PROBLEM SET 7 - GROWTH MODELS

PROBLEM SET 7 - GROWTH MODELS - QUESTIONS Answers

1. What is the difference between the growth rates of two otherwise identical countries one of which has reached the Golden Rule level of Capital and the other of which has less than the Golden Rule level of Capital?

2. In the growth model, describe the impact on the growth rate of GDP, the growth rate of GDP per worker, if consumers decide to increase their savings rate?

3. In the growth model, describe the impact on the growth rate of GDP, the growth rate of GDP per worker, if the population growth rate expands?

4. Explain how losing World War II set Japan and Germany up for dramatic growth rates in the post war period. What is the importance of savings behavior in this case?

5. "An increase in savings per worker implies an increase in capital per worker, and an increase in output per worker, and therefore a higher growth rate of output per worker." Is this true?

6. Discuss the likely impact of the following change on the level of output per worker in the long run:. change - A decrease in the retirement age.

7. Under what circumstances would increases in technological progress lead to an increase in the natural rate of unemployment.

8. If your were designing a program to decrease the inequality in wage growth in the United States, discuss the argument for and against making restrictions on the introduction of new technologies for focus as opposed to making increased emphasis on education your focus.

9. Suppose an inexpensive miracle lubricant was invented which reduced the wear and tear on any mechanical device. (For example, after using this lubricant the life of the typical internal combustion engine was increased by 50%) How wold such an invention affect the output per capital and the growth rate of output per capital initially and in the new steady state?

10. Consider the following data for three different countries. In each case you should assume that the country has reached a steady state growth path.

	Country A	Country B	Country C
MPK	.12	.13	.10
d	.04	.04	.03
g_n	.06	.07	.02
g_A	.02	.03	.03

Make a recommendation for each country. Specifically, should each country change its national savings rate? If a country should change its national savings rate, which direction should the savings rate go? Explain why you made the recommendation you did?

11. What happens to output per effective worker and capital per effective worker if there is an increase in the growth rate of technological progress, g_A. Does your result contradict the notion that an increase in the growth rate of technological progress is a good thing for the economy? Explain.

12. Consider a graph with output per capita on the vertical axis and the population growth rate on the horizontal axis. What would the scatter of points look like if you put the relevant point on for each of the countries in North and South America. Why did you make the choice you made?