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jaylaa04
jaylaa04
25.12.2019 • 
Business

Growth, capital, accumulation, and the economics of ideas: end of chapter problem 30. a small, less-developed country finds itself the recipient of a large amount of foreign direct investment that adds 50% to its current steady-state level of capital stock. this country seeks your advice about the long-term implications of that kind of . a. assume this country begins in a steady-state condition at y ss = kss, and show the short-run effects of a 50% increase in the steady-state level of capital stock such that ki = kss on the solow diagram. output (y), investment (1) b. what will the long-term effects of this increase in the capital stock be for this country? the long-term level of capital stock will return to kss the long-term level of capital stock will exceed kss. the long-term level of capital stock will fall below kss c. what potential problems should this country consider during the adjustment period described in part b? demand for domestic capital will decrease since foreign capital will replace worn-out domestic capital. consumption will decrease since capital will occupy a larger proportion of gdp. o savings will decrease since foreign capital will reduce the need for domestic investment. d. what must this country do in order to gain any permanent long-term benefits from this increase in its capital stock? select all actions which would be . decrease the savings rate (7) decrease the depreciation rate (8) increase the depreciation rate (8) increase the savings rate (7)

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