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Assume that an economy described by the Solow model has the production function Y = K...

Assume that an economy described by the Solow model has the production function Y = K 0.4 ( L E ) 0.6, where all the variables are defined as in class. The saving rate is 30%, the capital depreciation rate is 3%, the population growth rate is 2%, and the rate of change in labor effectiveness (E) is 1%.

  1. For this country, what is f(k)? How did you define lower case k?
  2. Write down the equation of motion for k.
  3. Solve for the steady state level of capital, k*.
  4. What is the growth of rate of k* and y* in the steady state?
  5. Calculate the growth rate of GDP per capita and aggregate GDP in the steady state. Show all your calculations.

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