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−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.) An increase in the value of the parameter A from its current value
Tap an option to check your answer.
Answer and worked solution
Checking your account…
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.