2 Suppose a country initially is at a steadystate with zero

2. Suppose a country initially is at a steady-state with zero population growth rate. Explain carefully the difference between allowing a 10% in-migration of worker every year forever, and a one-time 10% in-migration, on the country\'s steady-state capital-labor ratio, and output per worker ratio. Make sure you provide clear explanations.

Solution

With Zero Population growth

Case 1:With One time 10% in-migration the country\'s steady state capital labour ratio and output per worker will increase as increased labor will give positive marginal returns to capital and output per worker will increase

Case 2:On the other hand ,10% in migration of worker every year will decline steady state capital labour ratio and output per worker ratio With more and more labor inflow Output per worker will decline significantly that will be detrimental to long term economic growth .

So Allowing 10% in-migration is more fruitful to the economic growth than allowing 10% in migration on yearly basis .