About the growth accounting

Assignment Help Business Economics

Reference no: EM13741680

Growth accounting

Consider Solow's model when the production function is Y = 1000K0.3L0.7. The population growth rate is 2%, ? = 0.1 is the depreciation rate and s = 0.25 is the savings rate.

Suppose this economy was in its steady state when unexpectedly Total Factor Productivity increases by 10%.

a) Compute how much more output there is in this economy immediately thanks to this improvement in technology.

b) Assume that the economy has made the transition towards its new steady state. Perform a growth accounting exercise: given the initial and the final steady states, compute how much of growth per unit of labor is accounted for by the increase in capital per unit of labor and how much is accounted for by the technological improvement.

c) Discuss to what extent the result of this accounting exercise is correct. Remember that the savings rate did not change at all.

Reference no: EM13741680

Questions Cloud

What happens in the short-run if coustomers incomes increase : Assume that apples are an inferior good. Draw a perfectly competitive market for apples and a firm selling apples in the long run equilibrium where price is $10 and the firm’s equilibrium quantity is 50. EXPLAIN what happens in the short-run if coust..

About the full range of possible events-responses : Economic theory offers ______ about the full range of possible events and responses, which can prevent _______ about how households will respond to changes in prices or incomes.

Expect the elasticity of demand for any particular brand : There are many brands of laundry detergent, all equally effective. Would you expect the elasticity of demand for any particular brand to be high or low? Explain.

Policy of running a large export trade surplus : Assume only two countries, China and the US. If China decides to stimulate growth through a policy of running a large export trade surplus, does China’s national saving increase? Show the relationship between China’s national savings, domestic invest..

About the growth accounting : Consider Solow's model when the production function is Y = 1000K0.3L0.7. The population growth rate is 2%, ? = 0.1 is the depreciation rate and s = 0.25 is the savings rate. Compute how much more output there is in this economy immediately thanks to ..

Expect this to increase the unemployment rate : You need both equations and clearly labeled graphs (separate graphs for each question) to answer the following questions. Assume that b=1/2 and that initially the real interest rate is equal to the marginal product of capital at 3%. As well, assume t..

Number of atms increase should not it increase credit supply : In macroeconomics from williamson (4th edition) chapter 11 problem 7, if the number of atms increase should not it increase the credit supply? Instead of the credit demand because of an increase in R, as it’s done in this solutions manual?

Economic factors that lead to the development of monopolies : Compare the efficiency of monopolistic and perfectly competitive markets. Discuss the economic factors that lead to the development of monopolies. Examples of monopolies include electric utilities, railroads, airlines, cable television, and sports le..

Describe the process in the money market : Describe the process in the money market (demand and supply of/for money) by which the interest rate reaches its equilibrium value if it starts above equilibrium.

User Account

All Pages