According to the Solow model, how would each of the following affect consumption

ID: 1191998 • Letter: A

Question

According to the Solow model, how would each of the following affect consumption per worker in the long run (that is, in the steady state)? Explain.

a. The destruction of a portion of the nation’s capital stock in a war.

b. A permanent increase in the rate of immigration (which raises the overall population growth rate).

c. A permanent increase in energy prices

d. A temporary rise in the saving rate

e. A permanent increase in the fraction of the population in the labor force (the population growth rate is unchanged).

a) The steady state level of output would come down bwcause of fall in per capita capital stock.

b) This would increse the rate of growth of the economy in longrun as in Solow model ecoomy grows at the rate of change in poulation.

c) No change, as this is now taken into account.

d) this would only have level effect on the economy in shortrun.

e) this would also have only level effect and path of growth would increase in short run.

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.