Questions

Differentiate between the steady state level of capital per worker and the golden rule level; of capital per worker. Why does s* become important, to present and future generations?

In the SGM, how does the saving rate affect the steady-state level of income? How does it affect the steady-state rate of growth?

Explain the political barriers to achieving the golden rule level of capital per worker.

How is population growth analyzed in the SGM? What is the correlation between population growth and the level of capital per worker in this model?

In the Solow growth model,how does the rate of population growth affect the steady-state level of income? How does it affect the steady-state rate of growth?

Define the efficiency of labor in the SGM. How does this affect the model? What is g?

How well does the growth theory of the SGM "fit the facts"?

Choose two countries that interest you--one rich and one poor. What is the income per person in each country? Find some data on country characteristics that might help explain the difference in income: investment rates, population growth rates, educational attainment, and so on. (Hint: The web site of the World Bank is one place to find such data.) How might you figure out which of these factors is most responsible for the observed income differences?

Many demographers predict that the United States will have zero population growth in the twenty-first century, in contrast to average population growth of about 1 percent per year in the twentieth century. Use the Solow model to forecast the effect of this slowdown in population growth on the growth of total output and the growth of output per person. Consider the effects of both the steady state and the transition between steady states.

In the Solow model, population growth leads to steady-state growth in total output, but not in output per worker. Do you think would still be true if the production function exhibited increasing or decreasing returns to scale? Explain.