Part 1 Two Growth Models This question will compare Solow growth model and China growth model (developed by economists Zheng Song, Kjetil Storesletten, and Fabrizio Zilibotti}. [2} (a) Can capital accumulation generate sustained growth in per capita variables according to Solow growth model without a trend in productivity growth? Why? [2pt] I} (b) Private-Owned Enterprises (POEs) in China are less accessible to credit from nancial instituons than State-Owned Enterprises {SUE-3}. Provide two explanations for this. [lpt] [2} (c) Data shows that PDEs in China has a higher prots to fixed assets ratio than 50135. What is the implication of this fact? [lpt] I} (d) Based on the facts given in (b) and (c), how do economists develop the China growth model? In other words, describe how China growth model is different from Solow growth model in your own words. [2pt] I} (e) Suppose China has a corporate income tax at the rate of T. Revise the profit function of entrepreneur in China growth model. [lpt] [2} (1") Since 2008, lCl'lina has lowered the corporate income tax from 33% to 25%. Based on China growth model, how did the tax policy change accelerate the growth of private sector in China? Describe the key channel in your own words. [3pt] I} (g) China's growth experience features a combination of high capital investment rates and persistent returns to capital from 1978 to 2005, which is a puzzling issue through the lens of the traditional growth theory (Solow). Why is that feature inconsistent with the implication from Solow growth model? How does China growth model resolve this puzzle? [3pt] I} (h) The average real GDP growth rate in China is 9% since 1980. However, many economists believe that China can no longer grow as fast as before. Provide rationales for this opinion using the ideas from Solow and China growth models. [2pt]