Question

1). Given the following law of motion for capital per capita ˙k = sk^α − δk

find the steady state value of k.

Consider the Solow Growth Model with the following production function

Y = AF(K, L) = AK^(1/2)L^(1/2)

where savings rate, s = 0.2, the depreciation rate, δ = 0.1, and TFP, A = 2. Both population growth, n and technological growth are 0.

Problem 10. (10 Points) Derive the per worker production function, y, and show that it is decreasing returns to scale? Must show work to receive full credit.

Problem 11. (15 Points) Calculate the steady state values of k ∗ , y∗ , c∗ and i ∗ ? Must show work to receive credit.

Problem 12. (10 Points) Using your answer from the previous problem is the steady state capital per capita, k ∗ , also the ”golden rule” level of capital per capita? True? False? Must give a clear explanation to receive credit.

Answer 1