lecture 2 solow

Question 1

what is the solow model?

Answer 1

a model of decreasing marginal product of capital, endogenous savings rate,
and exogenous total factor productivity growth

Question 2

what is a steady state

Answer 2

when quantity of investment equals quantity of depreciation

Question 3

what happens if the level of capital is above or below the ss?

Answer 3

if above, capital stock will be decreasing in the LR toward the steady state. If below capital stock will be growing

Question 4

what is population growth is large?

Answer 4

capital per capita decreases

Question 5

what if savings increase in the solow model (closed economy)

Answer 5

capital stock increases as ss is higher - more growth as we are furytenr from ss - unless we are already far above in ss then we will decline rapidly in growth or shrink

Question 6

what are the factors in the solow curve

Answer 6

investment and depreciation

Question 7

what may cause depreciation?

Answer 7

higher population growth

Question 8

why is solow model flawed?

Answer 8

many factors in growthcsolow model cant explain everything

Question 9

a country far below its steady sate will do what?

Answer 9

grow quickly then slow as it reaches the ss

Question 10

what happens after an increase in investment in growth

Answer 10

country will grow since investment increase, creating new steady state

Question 11

Solow predictions of 2 countries’ growth hold if

Answer 11

productivity is the same

Question 12

Countries with same savings, population growth rates,
TFP levels tend to do what

Answer 12

converge income levels

Question 13

Why do economies exhibit sustained growth?

Answer 13

techonological evolution

Question 14

what is growth accounting

Answer 14

methodology that allows
for the breakdown of observed GDP growth into growth of
factor inputs and that of production technologies i.e method to evaluate the main contributors to growth

Question 15

Empirically, poor countries are growing…

Answer 15

aster than rich countries, but only in the OECD
subsample of countries

Question 16

According to the Solow model, a higher savings rate will do what for consumption

Answer 16

oncrease in both long run and short run

Question 17

In the context of Solow model, doubling population size
without changing capital will.

Answer 17

decrease per capita output temporarily

Question 18

what are the key predictions of the Solow Model?

Answer 18

faster population growth reduces income per capital – this
prediction is empirically validated

countries with unequal initial stock of capital converge to
the same level over time – this prediction is generally not confirmed empirically, but is accurate
for certain groups of countries (OECD members, countries open to trade)

Question 19

If depreciation is greater than investment what does this mean?

Answer 19

This means that capital stock will be decreasing or shrink over time

Question 20

is there a substantial amount of empirical evidence to prove solow model

Answer 20

some but not really, highly dependent on initial factors

Question 21

if 2 countries have the same level of income but different investment rates who will have higher growth?

Answer 21

the greater investment rate country - this is due to having a higher steady state due to investment

Question 22

if 2 countries have same investment but different income levels what happens? who grows faster?

Answer 22

poorer country as they will be further behind the steady state of income level. eventually it will converge with the rich

Question 23

comparisons between countries within the solow model only hold true if what

Answer 23

there are no differences other than the controlled components and productivity remains the same

Question 24

why do poor countries save less?

Answer 24

poor people cannot afford to favour the future over the present in consumption

Question 25

what are multiple steady states?

Answer 25

when the steady state is dependent on initial conditions, its easy to be rich and stay rich by saving but poor countries cant save and are caught in a cycle

Question 26

solow model is flawed?

Answer 26

yes - it ignores differences in initial conditions, why we have different investment rates and does not model long run growth becuz steady state means 0 growth which isnt true

Question 27

How does the issue of whether saving rates are endogenous or exogenous affect our interpretation of how well the Solow model explains income differences among countries?

Answer 27

if endegenous we understand people save more as income rises, the model will become more dynamic and responsive

if exogenous it simplifies the model and remains simple. countries differ in rates unrelated to the model, lead to different fixed investment rates which explains income level

Question 28

why does a greater population lessen capital stock?

Answer 28

dilution