Consider the Solow model (version 1.0) and assume that the economy is in steady state in year 2000. Draw the Solow diagram in a separate piece of paper and label this point A.

Q. In year 2000 a technological breakthrough increases TFP (A). Assume that the economy needs 10 years to reach the new steady state. Draw it in the Solow diagram and label the 2010 steady state as point B. Based on your analysis, which of the following statements is correct?

In year 2000 the investment curve shifts up. Point B is to the right of point A.

Between 2000 and 2010, GDP will increase. In the first few years of the decade, the growth rate will be low and will gradually accelerate as the years go by.

Between 2000 and 2010, GDP will increase gradually. In the first few years of the decade, the growth rate will be high and will gradually diminish as the years go by.

In year 2000 the investment curve shifts down. Point B is to the left of point A.

Q. In year 2010, because of its higher level of income, the economy receives a large inflow of immigrant workers seeking a better life, equal to 5% of the country's initial population. Assume that the economy needs 10 years to reach the new steady state. Draw it in the Solow diagram and label the 2010 steady state as point C. Based on your analysis, which of the following statements is correct?

In year 2010 GDP will increase because of the increase in labor. Over time, GDP will increase further and in 2020 it will be 5% higher than in 2010.

In year 2010 both the investment curve and the depreciation lines shift up.

In year 2010 the investment curve remains unchanged but the production function shifts up.

In year 2010 the investment curve shifts up but the production function stays unchanged.

Suppose the economy of a country behaves as the Romer model. In year 2020 the government is considering two different immigration policies. We will make projections 10 years out in order to choose the most beneficial program.

Q. In the baseline year 2020, the economy's parameter values are: the number of researchers is 50, the number of production workers is 150, research productivity is given by z=1/2000 and the initial level of knowledge is A0=100. If nothing changes in this economy, what will be income per capita in year 2030? Pick the closest value.*

The innovation rate is 5% and per-capita GDP in 2030 will be 96.

The innovation rate is 2.5% and per-capita GDP in 2030 will be 96.

The innovation rate is 2.5% and per-capita GDP in 2030 will be 123.

The innovation rate is 5% and per-capita GDP in 2030 will be 123.

Q.Immigration policy 1: in year 2020 the government is considering providing employment visas to 20 foreign scientists. What will be the new innovation rate? What will be per-capita GDP ten years out (in year 2030)? Pick the closest values.

The new innovation rate is 3.5%. Per-capita GDP in 2030 will be 96.

The new innovation rate is 2.5%. Per-capita GDP in 2030 will be 96.

The new innovation rate is 5%. Per-capita GDP in 2030 will be 123.

The new innovation rate is 2.5%. Per-capita GDP in 2030 will be 123.

Q. Immigration policy 2: in year 2020 the government is considering providing employment visas to 20 foreign production workers. What will be the new innovation rate? What will be per-capita GDP ten years out (in year 2030)? Pick the closest values.

The innovation rate is 5%. Per-capita GDP in 2030 will be 123.

The innovation rate is 3.5%. Per-capita GDP in 2030 will be 96.

The innovation rate is 3.5%. Per-capita GDP in 2030 will be 84.

The innovation rate is 2.5%. Per-capita GDP in 2030 will be 99.