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Covid 19 and Economic Growth An economy is characterized by the following production function:(, ) = 1/43/4. The savings rate in the economy is s=0.3
Covid 19 and Economic Growth
An economy is characterized by the following production function:(, ) = 1/43/4. The savings rate in the economy is s=0.3 and the depreciation rate is =0.15.
- a)Derive the per-capita production function.
- b)Derive the steady state level of capital per worker.How does the capital stock evolve over time if it is at this level? Find the steady state value of output and consumption per worker.
- c)Read thearticle "The toll on growth".The author talks about the effect of Covid 19 on economic growth in Africa and mentions, among other things, education. Explain why lower education could lead to lower output and lower economic growth. In the Solow model covered in parts a)-b), would the effect on economic growth be temporary or permanent?
- d)Assume that educational deficits affect the production function. It is now
- (, ) = 0.81/43/4. Calculate the new steady state level of output per capita.
- e)Show graphically the effect of lower education in the Solow model.
- f)Another channel that the text mentions is government spending. Explain why lower government spending can have a negative effect on economic growth and output. (There is no government in the model, but you can assume that government spending is a type of investment.) Describe how you would model the change in the Solow model. If it helps you, you can draw a Solow diagram.
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