week 5

Question 1

solow swan model of growth

Answer 1

• focus’ on role of capital accumulation to explain countries growth periods
• Y= A F(L,K)
• > Y = real GDP
• > L = Labour
• > K = Capital

Question 2

GDP per worker

Answer 2

• depends on the level of total factor productivity (A)

- capital intensity (K/L)

Question 3

types of investment

Answer 3

• Replacement
• > plant and equipment replacing worn-out capital or to provide new capital for the growing population
• Net Investment
• > Investment that exceeds replacement of capital

Question 4

Investment and Capital Stock

Answer 4

• replacement investment
• > contributes to keep the capital stock at its initial level
• Net investment
• > increases capital stock

Question 5

Replacing capital

Answer 5

• Before stock of capital changes
• > new workers need to be equipped with capital so that capital-ratio does not fall

-> fraction of capital worn needs to be replaced

• population and workers grow at a constant n
• capital depreciates at constant d
• RI=(n+d)k

Question 6

diminishing marginal productivity

Answer 6

• y k model
• increasing the capital - labour ratio from 100 to 110 leads to a larger increase in per capita thhan increasing from 1000 to 1100