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Question: 1 exercise 1 predicting steady states and growth rates from...

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1. Exercise 1. Predicting steady states and growth rates from Solow Model In this exercise, assume population growth a 1/3. Answer the following questions using the Solow model without a) First, assuming no differences in TFP. Assume that countries are in steady state Following the Solow model, use the data in the table to predict the ratio of per capita GDP in each country relative to that in the US Data Data Data Model (assume AAus) Countries Per capitaSaving rate Depreciation predicted yss.i/yss.Us GDP, 2014 dollars 141,841 162,691 8,084 (Relative to U.S.) United States Switzerland Kenya 25% 32% 11% 0.1 0.1 0.1b) Now, assume that the TFP in each country is different. Find the ratio of TFP in each country relative to the US that would fit the data perfectly. Model Countries Ai residual (Relative to U.S.) United States Switzerland Kenya c) Now, imagine that we obtained data on TFP, shown in the following table (your answer to the previous question doesnt have to be the same). Using this data in TFP, compute the steady state implied by the Solow model.Model (using data on Ai S) predicted y,s,i Data Countries Ai United States Switzerland Kenya 2000 2044 356 d) Finally, imagine that you trust perfectly the data shown in this exercise and that you believe in the Solow model. Why isnt the predicted output per capita from the previous question the same as the observed one? Do you think these countries will grow in the following periods? Which country do you think will grow at a faster rate? (To answer this question, think about transition dynamics!)

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