DSE 2011 Question 56: Harrod–Domar and Solow growth models
Setup, from Q55 of the paper:
Consider an economy with aggregate production Yt=A(Kt)α(Lt)1−α, A>0, 0<α<1, both factors fully employed. A constant fraction s of output is saved and invested, augmenting next period's capital; there is no depreciation. Labour grows at constant rate n. Let A=20, α=21, s=41, n=101. The steady state level of output per worker is
(Same Solow economy.) The rate of growth of aggregate output in the steady state is
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Setup, from Q55 of the paper: Consider an economy with aggregate production Yₜ=A(Kₜ)^α(Lₜ)^(1-α), A>0, 0<α<1, both factors fully employed. A constant fraction s of output is saved and invested, augmenting next period's capital; there is no depreciation. Labour grows at constant rate n. Let A=20, α=1/2, s=1/4, n=1/10. The steady state level of output per worker is (Same Solow economy.) The rate of growth of aggregate output in the steady state is (A) 0 (B) 1/4 (C) 1/2 (D) 1/10
Also written as: Setup, from Q55 of the paper: Consider an economy with aggregate production Y_t=A(K_t)^(alpha)(L_t)^(1-alpha), A>0, 0<alpha<1, both factors fully employed. A constant fraction s of output is saved and invested, augmenting next period's capital; there is no depreciation. Labour grows at constant rate n. Let A=20, alpha=1/2, s=1/4, n=1/10. The steady state level of output per worker is (Same Solow economy.) The rate of growth of aggregate output in the steady state is
Harrod–Domar and Solow growth models has come up 113 times in 7 exams since 2006.
What this question tests
This question is on The Solow model and its steady state, part of Harrod–Domar and Solow growth models in Economics of Growth and Development.
Growth with substitutable factors: capital per worker settles where saving covers depreciation and dilution.
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