Question

Using a standard Solow growth model with population growth, describe the evolutions of the real wage, the real rental rate of the physical capital, and the aggregate physical capital real income when an economy accumulates more physical capital per worker.

Answer 1

Answer :

Given that,

Using a standard Solow growth model with population growth, describe the evolutions of the real wage, the real rental rate of the physical capital, and the aggregate physical capital real income when an economy accumulates more physical capital per worker.

  

The income - expendoture identify holds as an equilibrium condition

Consumer's budget constraint

Therefore in equilibrium

The capital accumalation equation becomes :

The capital accumlation equation in per workers times is given through the following equation.