Exam 5: The Solow Growth Model

If C_t denotes consumption, I_t denotes investment, and Y_t is output, the resource constraint in the Solow model is:

In the Solow model, defining $\bar { s }$ as the saving rate and Y_t as output, consumption is given by $\bar { s } Y _ { t }$ .

Refer to the following figure when answering Figure 5.6: Solow Diagram -Consider Figure 5.6. If K_SK is the current capital stock in South Korea and K_CH is the current capital stock in China, according to the principle of transition dynamics:

Figure 5.8: Economic Growth Rates in France, Germany, and Japan 1951-2010 (Source: Federal Reserve Economic Data, St. Louis Federal Reserve) -Consider the data in Figure 5.8, which shows the growth rates for three countries that were involved in World War II. How does the basic Solow model explain the trends in growth rates for each of these countries?

In the Solow model, it is assumed that a(n) ________ fraction of capital depreciates regardless of the capital stock.

An increase in ________ leads to a higher steady-state level of output per worker, and a decline in the ________ leads to a lower steady-state level of output per worker.

In the Solow model, if $I _ { t } > \bar { d } K _ { t}$ , the capital stock:

A decline in the savings rate causes:

If we define $\bar { s } _ { 1 }$ and $\bar { s } _ { 2 }$ As the saving rates in Countries 1 and 2, respectively, $\bar { d } _ { 1 } = \bar { d } _ { 2 }$ As the depreciation rates in Countries 1 and 2, respectively, and   $\bar { A } _ { 1 }$ And   $\bar { A } _ { 2 }$ As productivity in Countries 1 and 2, respectively, in the Solow model, the equation ________ predicts that ________ contribute the most to differences in steady-state output per worker.

In the Solow model, investment, I_t, as a function of saving, $\bar { s }$ , and output, $Y _ { t } = F \left( K _ { t } , \bar { L } \right)$ , is written as:

Refer to the following figure when answering Figure 5.1: Solow Diagram -In Figure 5.1, the capital stock at K₁ is not the steady state because:

The principle of transition dynamics can be summarized as:

Among the world as a whole, there is ________ correlation between how rich a country is and how fast it ________ from 1960 to 2010.

In the Solow model, net investment is defined as:

The equation $\bar { s } { F } \left( K _ { t } , \bar { L } \right) - \bar { d } K _ { t }$ , is called:

Refer to the following figure when answering Figure 5.4: Solow Diagram -Consider the Solow model exhibited in Figure 5.4. If a country's savings rate increases, the economy would:

Refer to the following figure when answering Figure 5.6: Solow Diagram -Consider Figure 5.6. If K_SK is the current capital stock in South Korea and K_CH is the current capital stock in China, according to the principle of transition dynamics:

The production function used in the Solow model is:

For any given saving rate, depreciation rate, and production function, changing the initial capital stock yields a different steady state.

In the Solow model, saving and investing in additional factories and computers does ________ if the economy is below Y*. But, in the long run, the ________ accumulation lead the return to these investments to fall.