Let us consider the Solow model of chapters 3 and 4. a. Suppose the depreciation rate is 5%, the savings rate is 15%, the level of productivity is 1, and the share of labor is 0.7. If there is neither...




  1. Let us consider the Solow model of chapters 3 and 4.
    a. Suppose the depreciation rate is 5%, the savings rate is 15%, the level of


    productivity is 1, and the share of labor is 0.7. If there is neither population growth nor technology growth, what is the capital per capita, output per capita, and savings per capita in the steady state?




    1. At time t=100, the level of productivity increases by 10% and stays there forever. What is the new steady state of the model? Plot the dynamic evolution of output, capital, and consumption. Use a different figure for each variable. Make sure to show in each case the dynamic path with and without the change in productivity.




    2. Repeat points a. and b. but now assume that human capital is 2.




    3. If we think that Covid lowered our productivity permanently, how much poorer in terms of output and consumption will be the economy with lower human capital


      than the rich human capital economy?






  2. Fred is a rich dataset made available by the Federal Reserve Bank of St. Louis.
    a. Get familiar with the dataset at http://fred.stlouisfed.org
    b. Download time series data for 1) Total Factor Productivity at constant national


    prices for the United States, and 2) Share of labour compensation in GDP at national prices for the United States. Use the sample starting in the first quarter of 1955 for both series.


    c. With these data, what can you say about technology and efficiency in the United States between 1955 and the present?


    d. Use a scatter plot to show the total productivity series versus the share of labor compensation. That is, total productivity in the y axis and labor share in the x axis. What is the relation between the two variables?


    e. Compute the annual growth rate of total factor productivity and the labor share. What are the average growth rates of productivity and the labor share?


    f. Run a regression of the labor share growth rate against total factor productivity growth. Make sure to include a constant. Using the results, what can you say about the impact of technology progress on the labor share?



Mar 23, 2022
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