Graphically illustrate and explain the effects of an increase in the saving rate on the Solow growth model. In your answer, you must clearly label all curves and the initial and final equilibria. In your answer, explain what happens to the rate of growth of output per worker and the rate of growth of output as the economy adjusts to this increase in the saving rate
What will be an ideal response?
The graph is easy. The saving rate increases causing the saving/investment function to shift up. K/NA and Y/NA will rise to some permanently higher level. The growth rates of Y and Y/N will temporarily increase and then return to their original levels.
You might also like to view...
If workers demand and receive higher real wages (a successful wage push), the cost of production ________ and the short-run aggregate supply curve shifts ________
A) rises; leftward B) rises; rightward C) falls; leftward D) falls; rightward
Your cellular phone contract is due for renewal and the company offers you a new free phone. Since you want to use your new phone, you decide to recycle your old phone. Your action
a. Creates wealth by moving the phone from lower value use to higher value use b. Destroys wealth since you lose your phone c. Creates wealth by making you feel richer d. All of the above
The farmer pays 15 cents for wheat seeds. When the wheat is grown and harvested, the farmer sells it to the miller for 30 cents, who makes flour and sells the flour to the baker for 60 cents. The baker makes bread and sells it to the grocer for 90 cents, and the grocer sells it to a family for $1.55. The contribution to GDP is
A. $1.95. B. 45 cents. C. $1.55. D. $3.20.
Absent market imperfections, when firms ________ profits and households ________ utility Pareto optimality has been obtained.
A. maximize; maximize B. minimize; minimize C. maximize; minimize D. minimize; maximize