Chapter 8: Income disparity among countries

Part A

1. Textbook review question 1.

2. Textbook review question 2.

3. Textbook review question 3.

4. Textbook review question 4.

5. Textbook review question 5.

6. Textbook review question 6.

7. Is income per worker converging in the world?

8. What is human capital?

9. Everlasting growth in the Solow model.

(a) Can capital accumulation generate economic growth? Explain.
(b) Can capital accumulation generate everlasting economic growth? Explain.
(c) Can reducing the population growth rate lead to economic growth? Explain.
(d) Can continuous reductions in the population growth rate lead to everlasting eco-
nomic growth? Explain.
(e) Can an increase in the savings rate generate economic growth? Explain.
(f) Can continuous increases in the savings rate generate everlasting economic growth?
Explain.
(g) Can an increase in total factor productivity generate economic growth. Explain.
(h) Can continuous increases in total factor productivity generate everlasting eco-
nomic growth. Explain.
(i) Most developed economies have been growing for the last 100-200 years. Which
of the above do you think generated most of the growth experienced by these
countries?

10. Convergence in the Solow growth model.

(a) Show that if two countries are identical, except for their initial per-capita capital
stocks, their per-capita capital stocks and per-capita GDP will converge over time.
(b) If two countries differ only in terms of their savings rates, will they converge over
time in per-capita terms?
(c) If two countries differ only in terms of their population growth rates, will they
converge over time in per-capita terms?

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 (d) If two countries differ only in terms of their total factor productivity, will they
converge over time in per-capita terms?

11. The Ak-model of endogenous growth: Imagine that the marginal product of capital
were constant, instead of being diminishing in capital. In particular, assume that
y = Ak, where A is a positive constant, but that the rest of the model is the standard
Solow model. Assume also that sA > n + d.
(a) Plot production, saving and the maintenance curves in the same diagram.
(b) Where can we observe k in the figure?
(c) Use your figure to show what will happen to k over time. Graphically show how
the steady-state capital level changes as capital grows.
(d) Is it possible for capital accumulation to produce everlasting growth in this model?
Explain.
(e) Would countries that start with different capital levels converge in this model?
Explain.

12. Alternative endogenous growth model: Imagine that total factor productivity z auto-
matically grows as capital k is accumulated, as a result of new capital embodying new
technology. Assume that the capital stock is initially below the steady-state level.
(a) Graphically show how the steady-state capital level changes as capital grows.
(b) Is it possible for capital accumulation to produce everlasting growth in this model?
Explain.
(c) Would countries that start with different capital levels converge in this model?
Explain.

13. Textbook problem 1.

14. Textbook problem 2.

See study guide for more practice problems.