ECON2102 Assignment
1
Economic Growth
Term 3 - 2022
Due: 4th October (9AM)
Instructions:
• Due date 4th of October at 9AM. Electronic submission through Moodle.
• Please include a completed and signed cover sheet (available on Moodle).
• This assignment is to be completed individually.
• You must answer all the questions, but not all the questions will be marked. We will mark questions 2.1, 2.2,
•
•
•
4.1 and 4.4.
Presentation,
organization
tidiness
the assignment
counts towards
your
mark.
Make
sure your solutions are clear
and easy to navigate.
We areand
looking
forof
a simple,
but well-organized
general
look
for the
assignment.
You
are free
to type or handwrite
youryour
solutions.
If you
preferotherwise
to type them,
make
sureto to
use Microsoft
equations
(or equivalent)
to write
down
equations
properly,
reserveis
aclear,
space
handwrite
them.
IfWord
you
prefer to handwrite
the whole
assignment
or parts
of it, make
sure the handwriting
well-organised
and legible.
c Copyright U. of New South Wales 2022.All rights reserved (do not distribute this file).
Ⓧ
1
1
Facing economic growth in real life
As
a senior
staff member
of the Reserve
of Australia
(RBA)
you are
invited
to discuss
run economic
growth
around
the world.
In particular,
you areBank
concerned
about
rates
in questions:
1990long
(including
1990 in
your
calculations)
for a large
group of countries.
In
your report
you the
needgrowth
to address
thestarting
following
1. Which
country
had
the
highest
GDP
per-capita
in
2021?
Which
country
had
the
lowest?
What
was
the
value
for
Australia?
2. Which
country
had
the
highest
average
growth
rate
of
GDP
per-capita
in
the
last
11
years
from
2020
(i.e.,
from
2010
until
2020
inclusive)?
Notice that
some
countries
may in
notthe
have
enoughtodata
to obtain
this growth
information.
Hint: pay
close attention
to the
formula
discussed
textbook
calculate
average
rates. Ignore these cases.
3. Using
the GDP
average
growth would
rate oftake
the to
country
in
partof(2),
calculate
how
many
years country.
the country
with that
the
smallest
per-capita
“catchyou
up” found
to
level
perperiod.
capita
of
the highest
the
country
with
the highest
GDP per
capita
does
notthegrow
at allGDP
in this
Round
your answer
toAssume
the highest
integer.
4. Calculate
theisanswer
part (3)
if answers
the country
with
the highest
growth rate
0.9%?toRound
your
to the
highest
integer.GDP per-capita grows at 0.5% p.a. What about if the
5. Would
you
say
the
0.9
percentage
point
difference
from
(3)
to (4) in the average growth rate is an important difference?
as
a policymaker
would
you prefer? interested in improving the standard of living of the ones you govern, which of these two rates
6. Using
the dataset, replicate figure (3.5) of the textbook for Australia. Make sure to use all the years from 1990
onwards.
To prepare
your
report,
you are
advised
to visit$)
theforWord
Bank’s website
(https://data.worldbank.org/)
and for
collect
data
on
GDP
per
capita
(PPP,
constant
2017
international
all(1)
countries
in their dataset.
Makeall
sure
to collect
data
all years
they
have available.
the
data
Microsoft
Excel
(or
equivalent)
andadministrative
remove
years
untilat1989
(keep
1990
onwards).
The
datasetDownload
comes
with
aEuro
fewon
extra
information
on
regions
andanswering
other
regions
the Note:
very
bottom
(e.g.,
Arab
countries,
Low
Income,
Area).
Be
mindful
of
those
when
the
following
questions.
you
do
not need to prepare a report, just answer the questions but show all your calculations.
(1)
UNSW students can have access to Microsoft Office for free, both for Windows and Mac users. We strongly advise that you get it installed on your
personal computer.
2
2
Growth and population
The
Treasury
is help
currently
estimating
the
growth
for Australia.
They are
concerned
about
population
growth
and they
have
ask you
to
them
to prepare
athe
report
thatlevel
accounts
fortoanprepare
increase
in the
population
size
over time.
You remember
your time
UNSW
and
decide
to nuse
Solow-Swan
model
your
report.
The ABS
forecast
that population
will
growth
at aatconstant
rate
n, where
> 0.
When this
made,
the capital
equation
(in per capita
theneed
following
format:
∆k
(n +assumption
δ)kt, where iss is
the savings
rate accumulation
and δ is the capital
depreciation
rate. terms)
In yourassumes
report you
to answer
the
t = syt −
following
questions:
1. Find
the
steady-state
level
of
income
per
capita
assuming
the
production
function
follows
the
standard
CobbDouglas
production function. Show your work, step-by-step.
2. Inyou
2020,
Australia
had atwo
GDP
per capita
level explain
of around
$48,679
while Algeria’s
found
in (1), give
reasons
that could
why
this difference
exists. was about $10,735. Using the result
3. Ceteris
paribus,
what
happens
to
the
level
of
income
per
capita
at
the
steady
state when n increases. Explain why
(intuitively) using 1-2 sentences.
4. Find
the expression
consumption
per capita at the steady state in this economy. Compare this case to the case when
the population
doesofnot
grow.
5. Assume
A
=
10,
n
=
0.08,
δ
=
2%
and
α = 0.2 for per
thisworker
exercise.
Microsoft
(orsavings
equivalent)
plotuse
a graph
illustrating
thethe
relationship
between
consumption
at Use
the steady
stateExcel
and the
rate. to
Hint:
0.01
increments of
savings rate
when plotting
your graph.
6. What
is theCalculate
value of the
theexact
golden
rule Show
of savings
in this economy? You need to do some research to answer this
question.
value.
your rate
work.
3
3
Growth, technology and population
Following
the
report you
have
for the Treasury,
one ofa the
comments
you received
ispossibility.
that you are
allowing
technology
to growth
over
time,prepared
so you
to prepare
allowing
for on
thatpopulation
Younot
can
that
the growth
level of
technology
is ghave
> 0,decided
and continue
makingnew
the report
same assumptions
growth
youassume
made
before.
When these assumptions
capitalisaccumulation
equation
effective
labour terms)
following
= syt report
− (nare+you
gmade,
+need
δ)kthe
, where
the
savings questions:
rate
and δ is(intheper
capital
depreciation
rate. kt assumes
= Kt /(Atthe
Lt )
tto
and
yt = Yt format:
/(At Lt ).∆k
Int your
answers the
following
1. Find
the steady-state
of your
income
per capita
assuming the production function follows the standard Cobb- Douglas
production
function.level
Show
work,
step-by-step.
2. Inyou
2020,
Australia
GDP
per capita
level of
aroundwhy
$48,679
while Algeria’s
found
in (1), had
giveatwo
reasons
that could
explain
this difference
exists. was about $10,735. Using the result
3. Ceteris
paribus,
what1-2
happens
to the level of income per capita at the steady state when n increases. Explain why
(intuitively)
using
sentences.
4. Find
the
expression
of
consumption
per
capita
at the steady state in this economy. Compare this case to the case when
the population does not grow (but A
still
grows).
5. Assume
A = 10, n =the
0.08, δ = 2%, gbetween
= 0.06, consumption
and α = 0.2 for
exercise.
Use
Microsoft
Excel
equivalent)
to plot
graph
illustrating
perthis
worker
at the
steady
state and
the(or
savings
rate. Hint:
usea
0.01 increments
of therelationship
savings rate when plotting
your graph.
6. What
is theCalculate
value of the
theexact
golden
rule Show
of savings
in this economy? You need to do some research to answer this
question.
value.
your rate
work.
4
4
Sustained economic growth
After
discussing
your
report Then
with senior
economist
at thethem
Treasury,
they were impressed about how the model can generate
sustained
economic
growth.
you decide
to explain
the following:
1. What
is
the
motivation
to
study
the
Romer
model?
i.e.,
what
are
the issues the Solow-Swan model had that stimulated
economists to look for an alternative? Explain using at most 3 sentences.
2.
Why
is
the
Romer
model
incompatible
with
perfectly
competitive
Justify
using
at most
3.Why
do
we
not talk
about
the notion
in the Romer model? Ismarkets?
it possible
for the
steady
state3tosentences.
be observed
in the
Romer
model?
Explain
usingofatsteady
most 3state
sentences.
4. Using
the Romer
modelindiscussed
in lectures,on
show
(using equations
theworker.
effect ofThere
an increase
in the
proportion
of workers
research
the balanced
growth and
path aofdiagram)
output per
is no need
to
derive the equations
again;the
just
use the sector
ones obtained
in lectures.
5. Using
results
whichtime?
parameters would cause only level effects. What about only slope/growth effects?
Whatthe
about
bothabove,
effectsindicate
at the same
5