Answer to Question #148875 in Macroeconomics for Sharmin

Question

Consider the Ramsey model without technological progress and population growth. Describe how each of the following affects the ˙c = 0 and ˙k = 0 curves, and thus how they affect the steady-state values of c and k.

(a) A rise in θ.

(b) A downward shift of the production function.

(c) An increase in the rate of depreciation.

Answer 1

Ramsey growth model, is a neoclassical model of economic growth, it differs from the Solow–Swan model in that the choice of consumption is explicitly microfounded at a point in time and so endogenizes the savings rate.

(a) A rise in θ will not change k and c.

(b) A downward shift of the production function will decrease both k and c.

(c) An increase in the rate of depreciation will decrease k.