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Questions › DSE › DSE 2011 › Q59
2 marksEconomics of Growth and Development › Harrod–Domar and Solow growth models › Comparative statics in the Solow modelModerateabout 3 min

DSE 2011 Question 59: Harrod–Domar and Solow growth models

Setup, from Q55 of the paper:

Consider an economy with aggregate production Yt=A(Kt)α(Lt)1−αY_{t}=A(K_{t})^{\alpha}(L_{t})^{1-\alpha}Yt​=A(Kt​)α(Lt​)1−α, A>0A>0A>0, 0<α<10<\alpha<10<α<1, both factors fully employed. A constant fraction sss of output is saved and invested, augmenting next period's capital; there is no depreciation. Labour grows at constant rate nnn. Let A=20A=20A=20, α=12\alpha=\tfrac{1}{2}α=21​, s=14s=\tfrac{1}{4}s=41​, n=110n=\tfrac{1}{10}n=101​. The steady state level of output per worker is

(Same Solow economy.) An increase in the value of the parameter AAA from its current value

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Plain-text version

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.) An increase in the value of the parameter A from its current value (A) will increase the steady state level of output per worker and increase the growth rate of aggregate output in the steady state. (B) will decrease the steady state level of output per worker and increase the growth rate of aggregate output in the steady state. (C) will increase the steady state level of output per worker and leave unchanged the growth rate of aggregate output in the steady state. (D) will decrease the steady state level of output per worker and leave unchanged the growth rate of aggregate output in the steady state.

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.) An increase in the value of the parameter A from its current value

Harrod–Domar and Solow growth models has come up 113 times in 7 exams since 2006.

What this question tests

This question is on Comparative statics in the Solow model, part of Harrod–Domar and Solow growth models in Economics of Growth and Development.

How steady states change with population growth, technology and depreciation.

TestStop has 8 past-paper questions on this subtopic; the nearest in year are below.

  • IIT JAM 2021 · Q12In a Solow model without technological progress, Yₜ = Kₜ^α Nₜ^(1-α), population grows at g_N > 0, saving…
Practise Harrod–Domar and Solow growth modelsMore on Comparative statics in the Solow model

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Question from the DSE 2011 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.