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2. (6 points). Assume we can apply the model of an economy open to capital flows that is discussed in Chapter 11 to the economy
2. (6 points). Assume we can apply the model of an economy open to capital flows that is discussed in Chapter 11 to the economy of Avataria. (a) If the saving rate does not change, but the population growth rate rises, what will happen with Avataria's GDP per capita? What will happen with its GNP per capita? How do these results contrast with the Solow model presented in Chapter 3? (b) Now assume that the value of @, capital's share in the production function of Avataria, is 0.3. If the world rental price of capital, rw, quadruples, by what factor will the level of GDP per worker in Avataria change? In other words, you need to calculate the multiplier M in the relationship: New GDP per worker = M*(Old GDP per worker)
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