Answer to Question #317761 in Macroeconomics for Amin

Question

A) Discuss the steady state condition in the Solow model with population growth and no

technological progress.

B) In the Solow model with no population growth and no

technological progress, explain the golden rule level of consumption. Use a diagram to

discuss your answer.

C) When it would be possible to increase output per unit of labour

even at the steady state? Discuss.

Answer 1

a. The steady-state condition in the slow model will be affected if the population grows and the technology has no progress. The reason behind this is that the capital stock does not change if either technology does not change or population does not grow.

b. The consumption rate of the current people would be lower due to increased saving thus increasing the consumption rate of future generation

c.When the government directly invests in creating incentives to increase technology and physical capital. Investment in capital will increase the labor productivity which is used to measure output per labor hour