Exam 5: The Solow Growth Model

If $\bar { s }$ is the saving rate, $F \left( K _ { t } , \bar { L } \right)$ is the production function, and $\bar d$ is the depreciation rate, the growth of capital can be expressed as $\Delta K _ { t + 1 } = \bar { s } F \left( K _ { t } , \bar { L } \right) - \bar { d } K _ { t }$ .

In the Solow model, if net investment is positive:

The productivity parameter, $\bar { A }$ , plays a larger role in the Solow model than it does in the production model.

An increase in ________ leads to a higher steady-state capital stock, and a decline in ________ leads to a lower steady-state capital stock.

The amount of capital in an economy is a(n) ________, while the amount of investment is a(n) ________.

If we define the saving rate as $\bar { s }$ , output as $F \left( K _ { t } , \bar { L } \right)$ , and the depreciation rate as $\bar d$ , and if $\bar { s } { F } \left( K _ { t } , \bar { L } \right) > \bar { d } K _ { t }$ , the economy is in the steady state.

According to the Solow model, in the steady state, countries with high saving rates should have a:

In the Solow model, defining $\bar { s }$ as the saving rate, Y_t as output, and C_t as consumption, investment I_t is given by:

If the current capital stock in South Korea is greater than the current capital stock in China, according to the principle of transition dynamics:

In the Solow model, we generally assume that the capital depreciation rate is the same across all countries.

In the Solow model, if gross investment is greater than capital depreciation, the economy accumulates new capital.

For which of the following does the Solow model NOT provide adequate explanations?

In 2010, the Philippines per capita GDP was about ________, while in South Korea it was ________.

In the Solow model, the equation of capital accumulation is $K _ { t + 1 } = K _ { t } + I _ { t } - \bar { d } K _ { t }$ .

Assume two economies are identical in every way except that one has a higher saving rate. According to the Solow growth model, in the steady state, the country with the higher saving rate will have ________ level of total output and ________ rate of growth of output than/as the country with the lower saving rate.

An implication of the Solow model is that once an economy reaches the steady state,

In the Solow model, the saving rate is an endogenous variable.

In the corn farm example, saving some of the corn produced:

The Solow model describes:

In the Solow model, defining $\bar { s }$ as the saving rate, Y_t as output, and I_t as investment, consumption is given by: