Macroeconomics

Econ 3900 Macroeconomics

Analysis Assignment 4

Ch 9. Economic Growth

1. To face the impact of the pandemic the government has been forced to raise the deficit to very high level. Use the Solow growth model of Chapter 9 and what you learned in chapter 3 to graphically illustrate the impact of a permanent government deficit increase on the steady-state capital–labor ratio and the steady-state level of output per worker. Explain in words why the curves move the way they did. Be sure to label the: a) axes; b) curves; c) initial steady-state levels; d) terminal steady-state levels; and e) the direction curves shift.

2. What is the difference between convergence and conditional convergence with respect to predictions of the Solow growth model? Explain.

3. Explain why a higher savings rate generates both positive and negative impacts on steady-state consumption per worker in the Solow growth model with population growth and technological change.

4. Suppose a government is able to impose controls that limit the number of children people can have. Use the Solow growth model of Chapter 9 to graphically illustrate the impact of the slower rate of population growth on the steady-state capital–labor ratio and the steady-state level of output per worker.