Econ202 Macroeconomics

We will use The Worlds Bank’s World Development Indicators (WDI) website.
 

First, click on the Country tab, then the Aggregates tab, and then select (i) East Asia & Pacific (excluding high income) and (ii) North America.  Click the Country tab again.

Second, click on the Series tab and type NY.GDP.PCAP.PP.KD in the “Enter Keywords” box or search for “GDP per capita, PPP (constant 2017 international $)” and select. Click the Series tab again.

Third, click the Time tab and select on dates between 1990 and 2019 (inclusive).

(a) Produce a time series plot of the logarithms of GDP per capita for North America and East Asia over the period 1990 to 2019. [Hint: Use Excel, Python or R].

(b) Calculate the average annual growth rate for the two regions over the period 1990-2019.

(c) Which region has the highest output per person and which region is the highest growth in output person?

(d) What does this tell you about the convergence hypothesis?

Question 2: Solow growth model (6 marks)

In the Solow model, we have production given by

where A is a measure of productivity, Y is output, K is capital, L is labour and α is the capital share of income.

(a) Assuming , L = 200 and A=2, draw a plot of output as a function of capita as capital varies between 0 and 4000 in steps of 40. [Hint: Use Excel, Python or R].

(b) Assume the savings rate is 25 percent and the depreciation rate is 10 percent, draw the savings as a function of capital and the amount of deprecation as a function of capital. This is a version of the Solow diagram seen in Figure 11.2 of Blanchard. Calculate the steady-date level of output worker.

(c) Draw a third diagram to show the impact of savings rate increasing to 35 percent. Calculate the new steady state level of output per worker.

(d) How does the savings rate affect the growth rate of output per worker?