~ 1 ~ Moving the terms Kg (1 + gyna K, to the right-hand side, we can write 1 ~ ~ 1 n 1 .. Kt+1 (1+9A,t)_Kt(1+ gA,t) = 3Yt_ 6Kt_Kt(1+gA,t)n+Kt (3) Question 3.4 Show that we can write this capital accumulation equation as Ks+1 K, = th 5Kt where E and 6 are parameters that can be called 'adjusted saving rate' and 'adjusted de- preciation rate '. Express these parameters as a function of the original parameters of the model and the growth rate 9A)? I Observe that we can now write the production function and the capital accumulation equation as N E 5 5 ll | s i | tn :3. T N a Question 3.5 Express L terms of the parameters of the model . Now determine the y! in 'steady state' in variables Y\" Kt. Question 3.6 When if: and l}; are in steady state , at what rate do capital K ,3 and output Ye grow? Notice that you will obtain that K: and Yt grow at constant rates 7 such a situation is called the balanced growth path I Question 3.7 Verify that 91/ > 9A. Why does output and capital grow at a faster rate than technology? 4 An experiment in the Solow Romer model This problem assumes the combined Solow -Romer model with capital .It is very useful to solve Problem 3 first. Assume two countries in the Solow-Romer model that are completely identical, they differ only in their saving rate 5. In particular7 the 'poor' country P has a lower saving rate than the 'rich' country R, i.e., 5P