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Assume the economy has achieved the balanced growth steady state. Explain what factors determine the rates...

Assume the economy has achieved the balanced growth steady state. Explain what factors determine the rates of growth of each of the following variables when balanced growth is achieved: output per effective worker, capital per effective worker, output per worker, output, and consumption per worker.

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Answer #1

Growth rate of output per effective worker: This is 0 on the balance growth path (BGP)

Growth rate of capital of per effective worker: This is 0 on the BGP.

Growth rate of output per worker: This is gA on the BGP.

Growth rate of output: This is gA+gN+gAgN~gA+ gN on the BGP.

Growth rate of consumption per worker:This is gA on the BGP, since consumption per worker is just a fraction (the MPC) of output per worker, So it grows at the same rate as output per worker

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