Macro Module 4 Solow growth model savings rate practice exam questions...

 Author Message NEAS Supreme Being Group: Administrators Posts: 4.3K, Visits: 1.3K Macro Module 4 Solow growth model savings rate practice exam questionsCountries ABC and XYZ follow the simple Solow growth model, with no changes in the technology level.●    The savings rate is 31% greater in country ABC than in country XYZ. ●    The depreciation rate is 5.34% and the population growth rate is 2.80% in both countries.●    In 20XX, capital per worker is 836 and real GDP per worker is 266 in both countries.●    The growth rate of capital per worker in country XYZ is 1.35% per annum. Question 4.1: Ratio of income to capitalWhat is the ratio of income to capital in 20XX for these two countries?Answer 4.1: 266 / 836 = 31.82%Question 4.2: Savings rateWhat is the savings rate in country XYZ?Answer 4.2: (2.80% + 1.35%) / (31.82% – 5.34%) = 15.67%growth rate of capital per worker = savings rate × (ratio of income to capital – depreciation rate) – population growth rate ➾ savings rate = (population growth rate + growth rate of capital per worker) / (ratio of income to capital – depreciation rate) Question 4.3: Savings rateWhat is the savings rate in country ABC? Answer 4.3: 15.67% × (1 + 31%) = 20.53%(savings rate is 31% higher in ABC than in XYZ)Question 4.4: Growth rate of capital per workerWhat is the growth rate of capital per worker in country ABC?Answer 4.4: 20.53% × (31.82% – 5.34%) – 2.80% = 2.64%(growth rate of capital per worker = savings rate × (ratio of income to capital – depreciation rate) – population growth rate) Attachments
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