ECON10003 Macroeconomics: Solow-Swan Model Assignment
- Subject Code :
ECON10003
- University :
The University of Melbourne Exam Question Bank is not sponsored or endorsed by this college or university.
- Country :
Australia
QUESTIONS
1.Solow-Swan Model (5 marks).
You will explore the importance of diminishing returns to capital in the Solow-Swan model. Assume an economy with a production function that exhibits constant returns to capital.In each of the following cases, draw a Solow-Swan diagram and use is to explain whether and how the economy converges to a steady state. Clearly identify any steady state(s) or otherwise explain why there is no steady state.
- Assume the sum of population growth and the depreciation rate is greater than the saving rate.
- Instead assume the sum of population growth and the depreciation rate is less than the saving rate.
- Instead assume that the sum of population growth and the depreciation rate is equal to the saving rate.
What is the importance of diminishing returns to capital in the Solow-Swan model?
2. Long Run Growth in Australia (5 marks)
Use the Penn World Tables website
https://www.rug.nl/ggdc/productivity/pwt/
to download Australian annual data covering the period 1950-2019 for the following variables
- real GDP [use output-side real GDP at chained PPPs (in mil. 2017US$)]
- population
- employment
- average hours per worker
- the capital stock [use capital stock at current PPPs (in mil. 2017US$)]
Use a spreadsheet program to plot the levels of real GDP per person, real GDP per worker, real GDP per hour, and capital per worker for the Australian economy from 1950. Put all your plots on a log scale so that it is easier to spot changes in growth rates over time.
Calculate and report the average annual growth rate of real GDP per worker, real GDP per person, real GDP per hour, and capital per worker over the whole sample and over each decade (1950s, 1960s, . . . , 2010s). When did labour productivity grow quickly? When did it grow slowly? Has the Australian economy become more or less capital-intensive over this time?
Handling the data.
- Growth rates. For any variable Xt in year t, calculate the annual percentage growth rate as
gX,t = Xt ? Xt?1 /Xt?1 100
The average annual growth rate over T years is then
1/T TXt=1 gX,t - Decades. Treat the decades as, for example,
- Rounding. Round final answers to 2 decimal places.
- Log scale. Put plots on a log scale so that it is easier to spot changes in growth rates over time.
Your tutor can explain this in more detail.
Replication File.
You must be able to replicate these calculations if we ask you to. To that end, you must keep a single spreadsheet recording the Australian data you downloaded and the figures you made using this data. You should not upload this spreadsheet but, if we have questions about your assignment, we will ask you for this file.
