3. According to the Solow Swan model of growth: A) emerging economies grow quick

Question

3. According to the Solow Swan model of growth: A) emerging economies grow quickly initially, but eventually growth slows down. B) technological change can lead to sustained growth C) increasing the savings rate can lead to sustained growth D) Both A and B above E) All of the above Assume that GDP, in PPP terms, in China, is approximately the same as in the China grows at 7% per long will it take for GDP (in PPP terms) to be twice that of the USA? USA. If 4. year, and the USA grows at 2% per year, approximately how A) 10 years B) 11 years C) 12 years D) 13 years. E) 14 years.

Explanation / Answer

3. Option D
The solow-swan model says that sustained growth can be maintained only by technical progress. It also predicts conditional convergence as described in option a.

4. Option E 14 years

GDP of china = 2*GDP of USA
GDP of China after t years = (1+r)^t = 1.07^t
GDP of USA after t years = (1+r)^t = 1.02^t

1.07^t = 2*1.02^t
(1.07/1.02)^t = 2
1.049^t = 2
t * log(1.049) = log(2)
t = 14.48 = 15 years(approx4

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