Answered step by step
Verified Expert Solution
Question
1 Approved Answer
The following website, maintained by the Federal Reserve Bank of St. Louis, contains information on the share of GDP corresponding to investment (meaning the portion
The following website, maintained by the Federal Reserve Bank of St. Louis, contains information on the share of GDP corresponding to investment (meaning the portion of output dedicated to investment, or investment rate) in the US, measured quarterly from 1950 to the present: https://fred.stlouisfed.org/series/A006RE1Q156NBEA One striking feature of this graph, is that there is a lot of variation in the investment rate over time, and notably, that the investment rate tends to decline during economic recessions (highlighted by the grey bars in the graph). [For example, look at the big drop in investment rate that occurred during the Great Recession (2008-2010)]. A. A key assumption in the Solow Model, is that the savings rate (which is also equal to the investment rate), is exogenous and constant over time. Does this match up with the evidence presented in the graph mentioned above? B. What are some factors that could explain why the savings/investment rate declines during economic recessions
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started