In the Solow growth model, suppose that the per-worker production function is given by y =, with...

Question:

In the Solow growth model, suppose that the per-worker production function is given by {eq}y = zk^{3} {/eq}, with {eq}s {/eq} = 0.25, {eq}d {/eq} = 0.1, and {eq}n {/eq} = 0.02.

a) Suppose that in country A, {eq}z {/eq} = 1. Calculate per capita income and capital per worker.

b) Suppose that in country B, {eq}z {/eq} = 2. Calculate per capita income and capital per worker.

c) As measured by GDP per capita, how much richer is country B than country A? What does this tell us about the potential for differences in total factor productivity to explain differences in standards of living across countries?

Definition Of Per Capita Income:

Per capita income is the average income earned by per person in a given area. If income remains constant, an increase in Population would decrease per capita Income and If the population remains constant, the increase in income would increase the per capita income.

Answer and Explanation: 1

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a)

k = (sz / n + d)1/1-alpha

= (0.25 / 1/0.02+0.01)1/0.7

k = 2.85

Y = k^0.3 = (2.85)0.3= 1.37

b)

k = (sz / n + d)1/1-alpha = (0.25 /...

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Economic Inequality: Differences in Developed and Developing Nations

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Chapter 10 / Lesson 5
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Compare and contrast developed vs. developing countries. Discover what makes a country developed, and see differences between developed and developing countries.


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