How much higher should income per worker be

Assignment Help Microeconomics

Reference no: EM132154319

Question: Two countries, Richland and Poorland, are described by the Solow growth model. They have the same Cobb-Douglas production function, F(K, L) = AK^aL ^1-a , but with different quantities of capital and labor. Richland saves 32 percent of its income, while Poorland saves 10 percent. Richland has population growth of 1 percent per year, while Poorland has population growth of 3 percent. (The numbers in this problem are chosen to be approximately realistic descriptions of rich and poor nations.) Both nations have technological progress at a rate of 2 percent per year and depreciation at a rate of 5 percent per year.

2. Solve for the ratio of Richland's steady-state income per worker to Poorland's. (Hint: The parameter a will play a role in your answer.)

3. If the Cobb-Douglas parameter a takes the conventional value of about 1/3, how much higher should income per worker be in Richland compared to Poorland?

4. Income per worker in Richland is actually 16 times income per worker in Poorland. Can you explain this fact by changing the value of the parameter a? What must it be? Can you think of any way of justifying such a value for this parameter? How else might you explain the large difference in income between Richland and Poorland?

Reference no: EM132154319

Questions Cloud

How long will it take to perform the tenth repetition : How long will it take to perform the tenth repetition?

Large distributor of chemicals is considering expanding : A large distributor of chemicals is considering expanding their distribution network to go from 6 distribution centers up to 12.

Contract under the doctrine of mutual mistake : May David avoid the contract under the doctrine of "mutual mistake?"

Individually and through managing change in organization : The executive level with new ideas and coaching to improve their leasership both individually and through managing change in the organization

How much higher should income per worker be : If the Cobb-Douglas parameter a takes the conventional value of about 1/3, how much higher should income per worker be in Richland compared to Poorland?

Through managing change in the organization : Executive level with new ideas and coaching to improve their leasership both individually and through managing change in the organization.

What is the nash equilibrium for the question : Two prisoners, A and B, alleged to be conspirators in a crime, are put into separate rooms. A police officer goes into each room and says.

Outsourcing that consists of contracting operations : Business-process outsourcing (BPO) is a type of outsourcing that consists of contracting operations and responsibilities of a specific business process

Good example of a public good : Protection of endangered species has long been argued to be a good example of a public good.

User Account

All Pages