2. In the Solow model that we discussed during the lecture, the production function is: Y = AKL-a, t for t= 0, 1, 2,... Suppose we have the following parameter values: n = = 0.01 8 = 0.1 A = 5 ko = 10 For all t 0, the exogenous technological progress follows the following dynamics: At+1 = At. Suppose the last 4 digits of your student ID at UQ is i, the saving rate s for you in this question is determined as following: (1) divide i by 23 and get the remainder j; (2) add 10 to j to get z; (3) divide z by 50 to get s. In other words, the saving rates for your calculation is the remainder of the last 4 digits of your student ID divided by 23, plus 10 and then divided by 50. Mathe- matically, S = mod(i, 23) + 10 50 where mod() represents modulo operation. For example, if your student ID is 20221234, then since 1234/23 53.652, the remainder of the division is 1234 - 53* 23 = 15. The saving rate for your calculation is s = (15+10)/50 = 0.5. If there are leading zeros in the last 4 digits of your student ID, ignore them. So if the last 4 digits in your student ID is 0604, i = 604. Similarly, the a is the production function for your calculation is: mod(m, 13) + 10 50 where m is the mark that you got in the midterm exam of this course. Therefore, if you got 73 in the midterm, the a in your calculation should be: = mod(m, 13) + 10 50 0.36 - because (1) divide 73 by 13 has a remainder of 8 because 8 + 13 5 = 73; (2) add 10 to 8 to get 18; (3) divide 18 by 50 to get a = 0.36. Answer the following questions. (a) What is the steady state growth rate of total output Y? (10 marks) (b) Suppose people's wellbeing depends only on the level of their consumption. Imagine that a government could make a policy that decrease the parameter s by 0.01 while keeping every other parameters unchanged. Would the policy make people better off, unchanged, or worse off in stead state? Why? Show your reasoning. (5 marks) 3 (c) Suppose a government considers a policy to lower the saving rate. What potential policies may the government consider? What are the challenges or drawbacks of these policies? List two policies that may help to lower the saving rate and briefly explain why? (5 marks) 2. In the Solow model that we discussed during the lecture, the production function is: Y = AKL-a, t for t= 0, 1, 2,... Suppose we have the following parameter values: n = = 0.01 8 = 0.1 A = 5 ko = 10 For all t 0, the exogenous technological progress follows the following dynamics: At+1 = At. Suppose the last 4 digits of your student ID at UQ is i, the saving rate s for you in this question is determined as following: (1) divide i by 23 and get the remainder j; (2) add 10 to j to get z; (3) divide z by 50 to get s. In other words, the saving rates for your calculation is the remainder of the last 4 digits of your student ID divided by 23, plus 10 and then divided by 50. Mathe- matically, S = mod(i, 23) + 10 50 where mod() represents modulo operation. For example, if your student ID is 20221234, then since 1234/23 53.652, the remainder of the division is 1234 - 53* 23 = 15. The saving rate for your calculation is s = (15+10)/50 = 0.5. If there are leading zeros in the last 4 digits of your student ID, ignore them. So if the last 4 digits in your student ID is 0604, i = 604. Similarly, the a is the production function for your calculation is: mod(m, 13) + 10 50 where m is the mark that you got in the midterm exam of this course. Therefore, if you got 73 in the midterm, the a in your calculation should be: = mod(m, 13) + 10 50 0.36 - because (1) divide 73 by 13 has a remainder of 8 because 8 + 13 5 = 73; (2) add 10 to 8 to get 18; (3) divide 18 by 50 to get a = 0.36. Answer the following questions. (a) What is the steady state growth rate of total output Y? (10 marks) (b) Suppose people's wellbeing depends only on the level of their consumption. Imagine that a government could make a policy that decrease the parameter s by 0.01 while keeping every other parameters unchanged. Would the policy make people better off, unchanged, or worse off in stead state? Why? Show your reasoning. (5 marks) 3 (c) Suppose a government considers a policy to lower the saving rate. What potential policies may the government consider? What are the challenges or drawbacks of these policies? List two policies that may help to lower the saving rate and briefly explain why