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Consider the Solow growth model.
Construct a Solow graph that depicts the steady state in terms of capital per worker and output per worker in an economy in which the capital stock depreciates at a rate (, the labour force grows at a rate (, the savings rate is s, and technological progress is zero. Make sure that all axes, curves and relevant points are clearly labelled and annotated.
You are a Government economist in this economy and the Statistics Office has just reported that the growth rate of the labour force has permanently increased to . You are concerned about the impact on consumption per worker of this change. One colleague tells you that consumption per worker would increase because more people are productively employed and so more can be produced and consumed. Yet another colleague tells you that consumption per worker would rather fall. Use your graph from part (a) to settle the matter and determine the impact on consumption per worker. Explain your analysis and clearly label and annotate any modifications that you make to the graph.