Answer to Question #222798 in Macroeconomics for Nii

Question

If an economy can raise its annual real GDP growth rate from 3.8 percent to 4.5 percent, its real GDP doubling time is reduced by 15 years.

2) Suppose that the government passes a law requiring households to increase savings 10% above previous levels. According to Solow's growth theory, in the long run output per capita will grow less rapidly.

3) If an economy has a real GDP doubling-time of 48 years, this will be increased to 56 years if annual GDP growth is reduced by 3.2 percentage points.

4) If K = 3000, n = 0.02, and depreciation, δ= 0.04 and g=0.03, then investment of 320 will hold (K/AL) constant.

Answer 1

1.True

This is because doubling time of GDP will always be cut down by twice the percentage increase in annual real GDP growth.

2.False

In the long run output per capita will grow more rapidly because the 10 percent increase in savings means a subsequent increase in the rate of investments.

3.True

A reduction in annual GDP growth rate by 3.2 percent means that the annual GDP will be lowered and thus more time of 8 years will be required to double the real GDP.

4.True.

This is because the value of g, population growth is infinitesimal and will not affect the value of k, capital stock.