This is 2013, but imagine that 1000 years have passed

This is 2013, but imagine that 1000 years have passed ... we are all dead.

But don't worry. The world still exists!

iPhone 1005 has just been introduced.

But everyone realizes, to their dismay, that Robert Solow was right. The US has reached a steady

state where there is no population growth, no technological growth and the US per capita income

every year - year after year - is the same steady state value of y•. US capital stock is also the

same every year at k'. US per capita consumption is also stagnant at the steady state value of c•.

The situation is described by the graph below. Notice that k', y• and c· have constant values over

time.

(a) Why is k' drawn above y'? Is this typical or unusual?

(b) What is the most likely scenario in the Solow Mod el as far as the poor countries are concerned?

One thousand years later, are the poor countries still below the US per capita level of y'? Explain

with the Solow model in mind.

(c) Now suppose - after a on&-thousand year campaign, the US finally starts to save more. If the

saving rate rises significantly after year 3013, how would the three curves behave? Extend the three

curves beyond 3013 to show the effects of a rise in tlhe US savings rate. if you think there is more

than one possibility, draw more than one graph.