Suppose an economy described by the Solow model has the following production function:

a. For this economy, what is f (k)?

b. Use your answer to part

(a) to solve for the steady-state value of y as a function of s, n, g, and δ.

c. Two neighboring economies have the above production function, but they have different parameter values. Atlantis has a saving rate of 28 percent and a population growth rate of 1 percent per year. Xanadu has a saving rate of 10 percent and a population growth rate of 4 percent per year. In both countries, g = 0.02 and δ = 0.04. Find the steady-state value of y for each country.

Transcribed Image Text:

Y = K/2(LE) /2