Question

2. Consider a numerical example using the Solow growth model: The production technology is Y=F(K,N)=K0.5N0.5 and people consume after saving a proportion of income, C=(1-s)Y. The capital per worker, k=K/N, evolves by (1+n)k’=szf(k)+(1-d)k.

(a) Describe the steady state k* as a function of other variables

(b) Suppose that there are two countries with the same steady state capital per worker k* and zero growth rate of population(n=0), but differ by saving rate, s and depreciation rate, d. So we assume that s1/d1=s2/d2 where s2>s1 and d2>d1. Compare two countries’ consumption per worker(C/N). Is it different? Why?

(c) Now we learn that that d=0.1, s=0.1, z=1, and n=0. Calculate the steady state k*. Suppose that the saving rate, s, is doubled into s=0.2. Find out the new steady state k**.

Answer #1

Consider a numerical example using the Solow growth model: The
production technology is Y=F(K,N)=K0.5N0.5 and people consume after
saving a proportion of income, C=(1-s)Y. The capital per worker,
k=K/N, evolves by (1+n)k’=szf(k)+(1-d)k.
(a) Describe the steady state k* as a function of other
variables.
(b) Suppose that there are two countries with the same steady
state capital per worker k* and zero growth rate of
population(n=0), but differ by saving rate, s and depreciation
rate, d. So we assume that...

Assume that an economy is described by the Solow growth model as
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Production Function: y=50K^0.4 (LE)^0.6
Depreciation rate: S
Population growth rate: n
Technological growth rate:g
Savings rate: s
a. What is the per effective worker production function?
b. Show that the per effective worker production function
derived in part a above exhibits diminishing marginal returns in
capital per effective worker
C.Solve for the steady state output per effective worker as a
function of s,n,g, and S
d. A...

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17. Solow growth The production function in your country is: Y =
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a) Write the production function in per-eective-worker terms, so
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Assume that an economy described by the Solow model has the
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depreciation rate is 3%, the population growth rate is 2%, and the
rate of change in labor effectiveness (E) is 1%.
For this country, what is f(k)? How did you define lower case
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(c) Solve for the steady-state level of capital per worker (in
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Solow Growth Model Question: Consider an economy where output
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