Problem Set 4

FE411 Spring 2018 Ans

Rahman

Some Answers

The Malthusian Model

Consider the Malthusian model, as described by Weil in section 4.1 and in class.

1) Suppose that the economy is in steady state when suddenly there is a change in cultural
attitudes toward parenthood. For a given income, people now want to have more
children. Draw graphs showing the growth rates of population and income per capita
over time.

The birth schedule shifts up (top portion of the graph we drew in class). At first there is
no change in L or y, but now the economy is out of steady-state. Over time the population
rises, and as it does y falls. We show this by moving along the production function
(bottom portion of the graph we drew in class). Eventually the new steady state is
reached, with higher Lss and lower yss.

2) Let’s look at a Malthusian model with some actual functions. Suppose that the
^
relationship between income per capita (y) and the growth rate of the population L is
given by the equation:

L = y − 100
Suppose that output is produced using labor and land, according to the equation:

Y = L1 / 2 X 1 / 2 ,
where X is the quantity of land. Assume that X = 1,000,000.

a) Derive the relationship between population L and income per capita y.

First, we divide both sides of the production function by L and rearrange to get:

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 Problem Set 4
FE411 Spring 2018 Ans
Rahman
X 
1/ 2
X
Y =  , Therefore, L =  2  .
L y 
For X = 1,000,000 the figure is shown below.

b) Use the equations you have derived to compute the steady-state values of L and y.

In the steady state, the growth rate of population is zero, Using this value and
rearranging the first equation, we solve for the steady-state value of income per capita:

^
L = 0 = y − 100 . y ss = 100 .

Substituting in this value into the production function, we back out the value of steady-
state L:

X 1,000,000
Lss = = = 100 .
(y )
ss 2 100 2

The steady-state population is 100.

3) Let’s look at a different Malthusian model. Let’s say that the growth rate of population
is given by:

^ y − 100
L=
100
Let X be the total quantity of land in the economy, which is fixed. Let x then be
the quantity of land per capita. The function that relates land per capita and
income per capita is simply

y = Ax

where A is just a measure of productivity.

a) Suppose that A is constant. What will the steady-state level of income per
capita be?

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 Problem Set 4
FE411 Spring 2018 Ans
Rahman

^
b) Now suppose that A grows at a rate of 10% per year (that is, A = 0.1). What
will be the steady-state level of income per capita? Explain what is going on.

The steady-state level of income per worker is characterized by yˆ = 0. Hence, we must

first find the relationship among the growth rate of income per worker, productivity, and
population.
By taking natural logs of the production function and taking the derivative with respect
to time, we get:

 AX 
ln( y ) = ln( Ax) = ln   = ln( A) + ln( X ) − ln( L),
 L 
d d
ln( y )= ln( A) + ln( X ) − ln( L),
dt dt
yˆ =A+ Xˆ − Lˆ.


Therefore, the growth rate of income per worker must equal the growth rate of
productivity plus the growth rate of land minus the population growth rate. Since land X,
and productivity A, are constant, Xˆ= A= 0. These values tell us that yˆ = Lˆ , and because
we are interested in the steady-state value of income per capita, yˆ= 0= Lˆ. Now, we plug
the growth rate of population into the equation that relates population growth to income-
per-capita to arrive at our solution.
y − 100
Lˆ= 0= ,
100
yss = 100.

^
Now suppose that A grows at a rate of 10% per year (that is, A = 0.1). What will
be the steady-state level of income per capita? Explain what is going on.

Referring back to our equation relating the growth rate of income per capita,
productivity, land, and population, we can set Xˆ = 0 and Aˆ = 0.1.

yˆ = A+ Xˆ − Lˆ = 0.1 − Lˆ.


In the steady-state level of income per worker, ŷ must equal zero. Thus, we have that L̂
must equal 0.1. Using this value to solve for yss in the equation relating population
growth and income per capita,

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 Problem Set 4
FE411 Spring 2018 Ans
Rahman
y − 100
=Lˆ 0.1= ,
100
yss = 110.

The steady-state value is higher in this scenario. Due to consistent productivity growth
of
10 percent, the population can grow as well, leading to a higher level of income per
capita.

4) Composition Effects of Population Growth

Suppose that the world has only two countries. The following table gives data on their
populations and GDP per capita. It also shows the growth rates of population and GDP.
The growth rates of population and GDP per captia in each country never change.

Country Population in GDP per Growth Rate Growth Rate of

2000 Capita in 2000 of Population GDP per Capita
(% per year) (% per year)
Country A 1,000,000 1000 0 2
Country B 1,000,000 1000 2 0

a. What will the growth rate of world population be in the year 2000? Following
2000, will the growth rate of world population rise or fall? Explain why. Draw a
graph showing the growth rate of world population starting in 2000 and
continuing in to the future. Toward what growth rate does the world population
move in the long run?

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 Problem Set 4
FE411 Spring 2018 Ans
Rahman

Growth Rate of World Population

2%

1%
time

b. Draw a similar graph showing the growth rate of total world GDP.

Growth Rate of Total World GDP

2%

1%
time

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 Problem Set 4
FE411 Spring 2018 Ans
Rahman

c. Draw a similar graph shoing the growth rate of average GDP per capita in the
world.

Growth Rate of Average GDP per Capita

1%

0%
time

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 Problem Set 4
FE411 Spring 2018 Ans
Rahman

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