Compare the effectiveness-increase in savings rate

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1. Consider a country in which Y = 200 K2/5N 3/5. Assume in this country they save 20% of their income, population grows at 3% per year, and depreciation of capital occurs at 10% per year. Use the Solow model.

a. Compare the effectiveness of i) a 50% increase in the savings rate (to 30%), ii) a 67% decline in the population growth rate (to 1%), and iii) a 10% increase in productivity (to 220). That is, for each, give the percent by which it increases long-run average income (y * ) and long-run average consumption (c * ).

b. Give one policy each that could be undertaken to accomplish i)-iii). Which policy has the greatest impact on long-run well-being (assuming each policy has zero costs)?

Reference no: EM13885671

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