Question
Question I am taking a macro economics course and need help understanding the Solow Model. Specifically a step by step walk through on to solve
Question
I am taking a macro economics course and need help understanding the Solow Model. Specifically a step by step walk through on to solve the below practice problem. Thank you in advance.
- China
In 2014, GDP in China was still smaller than US GDP, but growing much faster. Let's analyze how will China's economy will fare in the next 15 years or so. Assume it is January 1, 2015 and use the Solow model to estimate economic growth in China up to 2030. It reports data for China's population, employment, GDP, capital stock, and educational attainment between 1975 and 2014. Educational achievement is proxied by average years of schooling. Population and employment are in thousand of individuals. GDP and capital are expressed in millions of 2011 PPP-adjusted US dollars. Assume that the production function is of the form Y = AK(HL)1and that the depreciation rate is 6% per year.
- Saving Rate
Use the law of motion for the capital stock in order to obtain estimates of the saving rate in all years 1975-2013.
- Future GDP
Assume that between 2015 and 2030, TFP, population, employment, and educational attain- ment will grow at the average rate for the period 1975- 2014 and that the saving rate will be equal to the average saving rate for the same period. Obtain estimates for GDP per capita up to 2030. Comment (briefly) on the strengths and weaknesses of your analysis. What parameter values are you least certain about? What features of the world does the model miss?
- Forecasting TFP
How would your forecast change if TFP did not grow at all over the period 2015-2030? How about the scenario in which educational attainment did not grow? Finally, what would happen if both population and employment stayed at the 2014 level throughout the period?
| year | gdp | population | employment | capital | education |
| 1975 | $1,242,576.00 | 905.5804 | 407.9577 | 1398982.125 | 4.102447 |
| 1976 | $1,230,911.00 | 921.6882 | 420.9138 | 1497865.5 | 4.2533691 |
| 1977 | $1,270,306.00 | 936.5545 | 432.582 | 1629328.625 | 4.4042912 |
| 1978 | $1,441,441.00 | 950.5373 | 445.5044 | 1797925.75 | 4.5552134 |
| 1979 | $1,509,705.00 | 964.1552 | 460.5417 | 1968592.75 | 4.7061355 |
| 1980 | $1,542,770.00 | 977.8374 | 479.1169 | 2156994 | 4.8570576 |
| 1981 | $1,592,155.00 | 991.5538 | 500.9003 | 2327858.5 | 4.9477088 |
| 1982 | $1,737,619.00 | 1005.329 | 519.1486 | 2499923.75 | 5.03836 |
| 1983 | $1,861,403.00 | 1019.698 | 533.1974 | 2586460.25 | 5.1290112 |
| 1984 | $2,113,989.00 | 1035.329 | 546.7159 | 2769155.25 | 5.2196625 |
| 1985 | $2,342,021.00 | 1052.622 | 560.2422 | 2983624.25 | 5.3103137 |
| 1986 | $2,463,038.00 | 1071.835 | 572.0871 | 3282196.75 | 5.3657318 |
| 1987 | $2,600,514.00 | 1092.647 | 582.4245 | 3572735.75 | 5.4211499 |
| 1988 | $2,693,208.00 | 1114.162 | 598.1485 | 3896080.75 | 5.476568 |
| 1989 | $2,682,698.00 | 1135.128 | 619.0762 | 4112408.25 | 5.5319861 |
| 1990 | $2,692,559.00 | 1154.606 | 637.0748 | 4405169 | 5.5874043 |
| 1991 | $2,872,830.00 | 1172.328 | 651.2 | 4603259 | 5.734796 |
| 1992 | $3,151,253.00 | 1188.45 | 658.215 | 4911135 | 5.8821877 |
| 1993 | $3,496,467.00 | 1202.983 | 664.8 | 5470074.5 | 6.0295794 |
| 1994 | $3,697,357.00 | 1216.067 | 671.315 | 6111468.5 | 6.1769711 |
| 1995 | $4,108,395.00 | 1227.841 | 677.6 | 6843664.5 | 6.3243628 |
| 1996 | $4,275,323.00 | 1238.235 | 685.075 | 7549487.5 | 6.4446124 |
| 1997 | $4,484,423.00 | 1247.259 | 693.85 | 8348899.5 | 6.5648621 |
| 1998 | $4,480,408.00 | 1255.263 | 702.285 | 9341167 | 6.6851117 |
| 1999 | $4,786,411.00 | 1262.714 | 710.155 | 10377540 | 6.8053614 |
| 2000 | $5,108,341.00 | 1269.975 | 717.395 | 11468023 | 6.925611 |
| 2001 | $5,506,417.00 | 1277.189 | 725.55 | 12694115 | 6.9981645 |
| 2002 | $6,113,615.00 | 1284.35 | 733.825 | 14055351 | 7.0707179 |
| 2003 | $6,661,583.00 | 1291.485 | 740.86 | 15798115 | 7.1432714 |
| 2004 | $7,407,745.00 | 1298.573 | 748.16 | 18093094 | 7.2158248 |
| 2005 | $8,209,448.00 | 1305.601 | 755.125 | 20994712 | 7.2883782 |
| 2006 | $9,035,262.00 | 1312.601 | 761.125 | 24752358 | 7.333301 |
| 2007 | $10,000,000.00 | 1319.625 | 766.95 | 28425092 | 7.3782237 |
| 2008 | $10,400,000.00 | 1326.691 | 772.35 | 32259552 | 7.4231464 |
| 2009 | $11,400,000.00 | 1333.807 | 777.375 | 36784308 | 7.4680692 |
| 2010 | $12,600,000.00 | 1340.969 | 781.3768 | 42218080 | 7.5129919 |
| 2011 | $13,800,000.00 | 1348.174 | 784.4269 | 48872912 | 7.5579146 |
| 2012 | $14,900,000.00 | 1355.387 | 788.8708 | 54610668 | 7.6028374 |
| 2013 | $15,900,000.00 | 1362.514 | 793.0223 | 61477376 | 7.6477601 |
| 2014 | $17,100,000.00 | 1369.436 | 798.3678 | 69379696 | 7.6926828 |
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Microeconomics A Contemporary Introduction
Authors: William A. McEachern
9th edition
978-0538453714, 538453710, 978-1111415921
