Question
4a) Explain the relationship between output, saving, and investment. Explain what condition must occur for each of the following to occur: (1) the capital stock
4a) Explain the relationship between output, saving, and investment. Explain what condition must occur for each of the following to occur: (1) the capital stock to increase; (2) the capital stock to decrease; and (3) the capital stock to remain constant with aid of a diagram. 4b) Suppose depreciation per worker is less than saving per worker. Given this situation, explain what will happen to each of the following variables over time: capital per worker, output per worker, saving per worker, and consumption per worker. Discuss with the aid of a diagram. 4c) Suppose there is an increase in the saving rate. Explain what effect this will have on output, output per worker, the rate of growth of output, and the rate of growth of output per worker. Discuss with the aid of a diagram. How does an improvement in technology differ from the increase in the saving rate in the Solow model? 4d) Determine the pattern of gross fixed capital formation (% of GDP) using World Development Indicators for Pakistan, China, India and Bangladesh between 2000 and 2017. Explain the likely relationship between this gross fixed capital formation (% of GDP) and GDP growth rate. Discuss in relation to the Solow model?
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