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For this question, please use sheets 2a and 2b. Relative to the scenario for the US (on sheet 1a) we allow for
faster population growth, a larger initial population, and a smaller initial capital stock. In addition, we freeze
China’s TFP growth for the first 20 years (1955-1975) and then have China’s TFP match the US level from
20 years prior (e.g. Chinese TFP in 2020 equals the US level in 2000).
(a) (10 points) In sheet 2a in columns G through M, please construct spreadsheet formulas to calculate the
requested values using the Solow model using the given data and parameters for the China model.
(b) (10 points) In sheet 2a in cells E2 and E3, please calculate the long-run stable level of capital per
effective worker (ˆk = K/AL˜ ) and output per effective worker (yˆ = Y /AL˜ ) for the China model. Are
these values higher or lower than the corresponding values for the US? Explain why the two values
differ. In cells H2 and H3, calculate the long-run stable level of capital per effective worker and output
per effective worker if there is no TFP growth (as we assumed for 1955-1975). Are these values higher
or lower than the values for the scenario with TFP growth? Explain your answer.
(c) (10 points) Given the assumptions in sheet 2a, what is the long-run growth rate of GDP per capita
in China? In our model, is growth in China increasing or decreasing over time? How does growth
change between 1974 and 1976? How does growth evolve after 1976? Explain why the model and other
assumptions generate this pattern.
(d) (5 points) Download data on Chinese real GDP based from the Penn World Tables at the link here.
Enter Chinese real GDP (PPP), series rgdpe, into column G of sheet 2b and population, series pop,
into column H, and calculate real GDP per capita growth in column I. How does the simulated data
in sheet 2a compare to this data? Try adjusting any model parameters or initial conditions to better
match the simulated and observed data.