How steady state gdp depends on the savings rate

Reference no: EM131832848

The Solow model makes it quite easy to figure out how rich a country will be in its steady state. We already know that you're in a steady state when investment equals depreciation. In math, that's

γY=δK

Since Y =√K in our simplest model, this means that K = Y²:

γY=δY²

There are a lot of ways to solve this for Y- the easiest might just be to divide both sides by Y, and then put everything else on the other side. When you do this, you can learn how steady state GDP depends on the savings rate and the depreciation rate. Here are a few questions:

a. Many say that if people save more, that's bad for the economy: They say that spending money on consumer goods keeps the money moving through the economy. Does this model say that?

b. Many people say that when machines and equipment get destroyed by bad weather or war, that makes the economy better off by encouraging businesses and families to spend money on new capital goods. Does this model say that?

Reference no: EM131832848

Questions Cloud

Where would you rather be a citizen- frugal or smart : What is the amount of investment in each country this year?Where would you rather be a citizen: Frugal or Smart?

Bridge deck will contain exactly k aces : Prove that the probability of South's receiving exactly k aces when a bridge deck is divided into 4 hands is the same as the probability that a hand of 13 cards

What is the probability : Four balls are drawn without replacement; suppose x is the second smallest of the 4 numbers drawn. What is the probability that x = 3?

Identify the stakeholders in the case : Nicole Martins is the controller at UMC Corp., a publicly-traded manufacturing company. Last year, UMC had annual sales revenue of $15 million.

How steady state gdp depends on the savings rate : They say that spending money on consumer goods keeps the money moving through the economy. Does this model say that?

Conditional probability of a match : Matching problem (case of sampling without replacement). Show that for j = 1, ...,M the conditional probability of a match in the jth urn

Consider an urn that contains rm balls : A sampling (or coupon collecting) problem. Consider an urn that contains rM balls, for given integers rand M. Suppose that for each integer j, 1 to M

Create a surplus or a shortage in the labor market : Let's connect the minimum wage model back to the supply and demand model of Chapter 8. Is a minimum wage a price ceiling or a price floor?

Indistinguishable balls are distributed : If 7 indistinguishable balls are distributed among 10 urns in such a way that not more than 1 ball may be put in any urn and all such arrangements

User Account

All Pages