Question

Answer the following Y = f(k) = ka, where a = 0.25 S = 0.3 δ...

Answer the following

Y = f(k) = ka, where a = 0.25

S = 0.3

δ = 0.2

n = 0.05

g= 0.02

a. Find the steady state capital per effective worker, output per effective worker, investment per effective worker, and consumption per effective worker.

b. Find the steady state growth rate of capital per worker, output per worker, investment per worker, and consumption per worker.

c. Find the steady state growth rate of capital, output, investment, and consumption.

d. Show using two separate graphs the effects on the Solow growth model (i) an increase in the savings rate, and (ii) and an increase in depreciation rate, the population growth rate, or the technological growth rate.

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Answer #1

Increase in the savings rate will increase the investment and shift the investment curve upward. Because of this, steady state level of capital and output per effective worker increases.

Increase in the depreciation rate, population growth rate or technological growth rate will increase the break even investment. Because of this steady state level of capital and effective per worker decreases.

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