Purchase Solution

Solow growth: Compute the current US investment rate (I/Y)

Not what you're looking for?

Ask Custom Question

After reviewing the latest gures of investment rates for China and US, the
US Government is considering a scal policy manoeuver to increase investment
rate in US. In this question you are asked to use the Solow model to evaluate
the impact of this policy change. For simplicity assume that the US is a closed
economy so that
Y = C + G + I
where Y is GDP, C is private consumption, G is government consumption and I
is investment. Assume that the government currently taxes GDP at a 20% rate
and all tax revenues go to nance government consumption expenditures, which
are equal to 20% of GDP (so that G = 0:2Y ). The private sector consumes 80%
of after-tax GDP ((1-0.2)Y).
a) Compute the current US investment rate (I/Y)

Purchase this Solution
Solution Summary

The required investment rate (I/Y) is calculated for China and the United States investments.

Solution Preview

After reviewing the latest figures of investment rates for China and US, the US Government is considering a fiscal policy maneuver to increase investment rate in US. In this question you are asked to use the Solow ...

Purchase this Solution
Free BrainMass Quizzes
Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

View More Free Quizzes
Related BrainMass Solutions

  • Solow model

    What does, and what doesn't, the Solow model tell us about the sources of economic growth and the best policies for attaining high per capita incomes?

  • The Impact of a Capital Shock on Solow Model

    Suppose we have an economy described by the Solow growth model, with Cobb-Douglas production function (Y=F(K,AL) = K^α (AL)^1-α ), a capital share of 0.5; with population, labor-augmenting productivity growth, and depreciation rates given by

  • Solow Growth Model

    The Solow model uses three variables (technological progress, population growth rate, and the depreciation rate) to determine the change in capital per effective worker (k).

  • Solow model

    The destruction of a portion of the nation's capital stock in a war. 6b. A permanent increase in the rate of immigration (which raises the overall population growth rate)?

  • Modeling the Effects of Improvements in Technology

    A common prediction of these models is that an economy will always converge towards a steady state rate of growth, which depends only on the rate of technological progress and the rate of labor force growth.

  • Neoclassical Model & Growth Accounting Equation

    (c) Explain why: (1) An increase in the rate of growth of the population, n, reduces the steady state level of k and y if n increases, it increases the (n+d)k line on the Solow graph (attached).

  • US capital-labor ratio since 1948

    The growth rate in period after 1982 is much faster than the growth in the earlier period. Two main things to be noted are: 1. The growth rate in output per worker is faster than growth rate in capital labor ratio. 2.

  • Solow graph

    If we look at the Solow Model we can find that in short run the economic growth of the country increase pace with a slow rate but in long run its impact goes off and the economic growth of the country become constant.

  • The Solow Growth Model

    I explain the steady state level of capital and how savings affects output and economic growth. This provides a brief introduction to the solow framework. see attached powerpoint presentation.

View More Related Solutions