Economics Problems?

Question

Consider the Solow model with population growth. Assume that population can grow at two different rates, n1 and n2, where n1>n2. The population growth rate depends on the level of output per capita (and therefore the level of capital per per capita). Speciffically, population grows at rate n1 where k<k(with a line over it). Draw a diagram for this model. Assume that (n1 + delta) k(with line over it)>yf(k) and that (n2+delta)k(with line over it). Explain what the diagram says about the steady state of the model.

Answer 1

First case:

n falls if k falls and n increases if k increase - this means that in very long-run these changes will offset each-other toward one level of steady-state capital level. So n1 and n2 in long-run will converge toward each-other to one level - and the same will happen with steady-state capital level (steady-state capital level will change due to changes in &quot;n&quot;)

Conclusion: For both initial population growth rates in economies over long-run both cases will have same levels of population growth and steady-state capital levels.

Second case:

(n1+δ)* κ &gt; yf(k) and (n2+δ)* κ &lt; yf(k)

(n1+δ)* κ &gt; yf(k) - means that all output is spent to cover depreciation and population growth - thus there is no consumption and capital per worker is also falling (depreciation is higher than output).

(n2+δ)* κ &lt; yf(k) - means that people in this economy do have some output for consumption thus their current quality of life is better than in economy with parameters n1.

P.S. actually seems like your question is unfinished, for instance in | (n2+δ)* κ | part condition |&lt; yf(k)| is missing so I have assumed they are different. Another point - your task is very abstract and doesn&#039;t have strict rules - so it&#039;s better to give some sample formula and initial levels expressed in numbers.