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2. The Solow-Swan Model a) Consider an economy that is initially in a steady state equilibrium....

2. The Solow-Swan Model

a) Consider an economy that is initially in a steady state equilibrium. Assume that in this equilibrium it has a saving rate of 50 per cent and a depreciation rate of 2 per cent. Further assume that the population is constant and that the level of output produced can be represented by the following production function: Y = AKαL 1−α where A = 1 and α = 0.5. Use the Solow-Swan model to determine the level of capital per worker and output per worker in this economy.

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