EC250 Chapter Notes - Chapter 8: Yle, Real Wages, Marginal Product

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11 Jan 2020

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Technological progress in the solow model: e = labor efficiency, technological progress is labor-augmenting: it increases labor efficiency at the exogenous. G = e/e: y = f (k, l x e, where l x e = the number of effective workers increases in labor efficiency have the same effect on output as increases in the labor force, notation. Y = y/le = output per effective worker. N k to provide capital for new workers. G k to provide capital for the new effective workers created by technological progress. The growth rate of y equals the growth rate of (ye) plus that of l. we just saw that, in the steady state, the growth rate of (ye) equals g. and we assume that l grows at rate n. In the golden rule steady state, the marginal product of capital net of depreciation equals the pop. growth rate plus the rate of tech progress.

Related Questions

Suppose the output per effective worker is production function is y=10k^1/2, where k equals the amount of capital per effective worker and the capital lasts an average of 10 years. Assume that the saving rate is 32 percent, the rate of growth of population is 4 percent and the rate of technological growth is 2 percent.

a) Solve for the steady state levels of capital per effective worker, output per effective worker, investment per effective worker and consumption per effective worker.

b) Calculate the growth rate of total capital income and the growth rate of total labor income at the steady state.(Hint: Capital and labor each earn a constant share of the economy's income ).

c) Prove, at the steady state, (i) the capital-output ratio is constant;(ii) the real wage grows at the rate of 2 percent.

d) Calculate all of the following at their Golden Rule levels: Capital per effective worker, output per effective worker, saving and investment per effective worker, and the consumption per effective worker.

e) Whether the saving rate is too high or too low?

crimsonhound401

Suppose that the production function is y=k^a, where y and k denote production per unit of effective labor and capital per unit of effective labor, respectively. Suppose also that the saving rate, the depreciation rate, the growth rate of the population and the rate of technological progress are s, q, n and g, respectively.

a) what is the condition that characterizes the steady-state?

b) What are the growth rates of production per unit of effective labour, of production per worker, and of total production in steady-state?

c)If a=0.3, q=0.05, n=0.02, g=0.03, k/y=3, and the econmy is in steady-state, what is the saving rate?

d0 What is the marginal product of capital?

Two countries, Highland and Lowland, are described by the Solow growth model. Both
countries are identical, except that the rate of labor-augmenting technological progress is
higher in Highland than in Lowland.
a. In which country is the steady-state growth rate of output per effective worker higher?
b. In which country is the steady-state growth rate of total output higher?
c. Does the Solow growth model predict that the two economies will converge to the same steady
state?

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EC250 Chapter Notes - Chapter 8: Yle, Real Wages, Marginal Product

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