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Question 1 Growth Suppose that the economy’s production function is: ?? = ?? 0.35(???? ) 0.65...

Question 1

Growth Suppose that the economy’s production function is: ?? = ?? 0.35(???? ) 0.65 and that the saving rate (s) is equal to 10% and that the rate of depreciation (?) is equal to 2%. Further, suppose that the number of workers grows at 5% per year and that the rate of technological progress is 1% per year.

a. Find the steady-state values of:

• capital stock per effective worker

• output per effective worker

• consumption per effective worker

• the growth rate of output per effective worker

• the growth rate of output per worker

• the growth rate of output

• the growth rate of consumption

b. Suppose that the rate of technological progress speed up to 2% per year. Recompute the answers to part (a). Explain.

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