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##### Suppose that an economy begins in a steady-state equilibrium.

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solution

**Question**

Solow Model II;Suppose that an economy begins in a steady-state equilibrium. Suppose that this;economy is described by the following production function;Yt = A[overbar] K[subscript t]^(1/3) L[subscript t]^(2/3);Also assume that all of the other assumptions from lecture and/or from Chapter 5;hold. By what proportion does per capita real GDP change in the long run(steady-state) in response to each of the following changes?;A. The savings rate doubles.;B. The depreciation rate falls by 10 percent.;C. Total factor productivity doubles. Intuitively explain why the result in the;Solow model is different from the same doubling of total factor;productivity in the Production Model in Part B of Question 1.;D. An earthquake destroys 75 percent of the capital stock.;E. A more generous immigration policy causes the population to double.

Paper#22935 | Written in 18-Jul-2015

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