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1 Immigration in a Solow Economy [15 Points] 1 Consider a Solow model where the production function is Y = K 0' -L1_', where a
1 Immigration in a Solow Economy [15 Points] 1 Consider a Solow model where the production function is Y = K 0' -L1_', where a = E and Y is aggregate output. K and L are aggregate capital and the population in this economy, respectively. A constant fraction of output is invested (or saved), 5 = 15%. And the depreciation rate for capital is 6 = 5% and the population growth rate is n = 5%. 1. Suppose that, at Period zero, L0 = 1 and K0 = 1. Calculate the growth rate of income per capita at Period zero. 2. Suppose that before Period t*, the economy is at the steady state. At the beginning of Period t*, a group of immigrants come to this country and the population in this economy increases from L to L'. a. Analyze the dynamics of convergence, with the aid of Solow Diagram (where capital per capita is on the xaxis) b. Plot ln(kt), before and after Period t*, (where t is on the xaxis). c. Plot ln(Yt), before and after Period t*, (where t is on the xaxis)
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