ECON 2400 Lecture Notes - Lecture 5: Absolute Convergence, Capital Outflow, Conditional Convergence

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12 May 2016

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Both have the same s, n, g, , same cobb-douglas production function y. Country 1 has a higher level of real gdp per capita (y/l) than country 2. Draw the rate of capital and the same labour efficiency e. at the moment, k inflow ( s y k. Explain: consider the alternative scenario for these two countries. Both have the same s, g, and the same labor efficiency. , same cobb-douglas production function y: at the moment, both countries have the same real gdp per capita (y/l). However, country 1 has a lower population growth rate n than country 2. Draw the rate of capital k inflow ( s y k. ) and rate of capital outflow ( n g ) vs. k for both countries on the same graph. Indicate the steady states of both countries and the current position of both countries. Indicate the current values of k for both countries on the same graph.

Related Questions

1. What does the term s*Y represent in the capital-accumulation equation of Solow growth model?

a) The labor-income share of GDP.

b) Net investment.

c) Gross investment.

d) The net change in the capital stock from one year to the other.

2. In the Solow growth model, suppose that the savings rate is 25%, the depreciation rate is 10%, the current capital stock is 10 trillion $ and current output of a country is 4 trillion $. What will the capital stock of this country be in the following period?

a) 10 trillion $.

b) 11 trillion $.

c) We cannot tell since we are not given information about technological progress.

d) We cannot tell since population growth is not known.

3. Consider a country which starts with a capital stock below its steady-state level in the Solow model (without technological change). Why is growth slowing down over time for this country?

a) Population growth is becoming stronger over time since the population is growing, which makes it harder to accumulate high levels of capital per capita.

b) A country cannot maintain the same savings rate forever, so investment must decrease at some point.

c) The more capital there is, the more of it depreciates. As the country becomes richer, it becomes ever harder to replace depreciated capital.

d) There are diminishing returns to the factor capital. Thus investment, capital and GDP per capita grow by ever smaller amounts as the country becomes richer.

4. Suppose Pakistan has a higher savings rate than Iran. Both start out with the same capital per worker. All other parameters are the same for both countries (population growth and depreciation rate). The Solow growth model (without technological change) predicts that...

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ECON 2400 Lecture Notes - Lecture 5: Absolute Convergence, Capital Outflow, Conditional Convergence

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