5. Consider a Solow model where n = 0, , and A₀ = 1, K₀ = 4, L₀ = 10, and s = 0.2.

Make a spreadsheet based on this information about the Solow model above along with this one modification: A grows by 3% each year. This is different from our standard model where A never changes.

Your spreadsheet should include these columns:

Column A = values for L

Column B = values of A

Column C = values for K based on the law of motion from lecture

Column D = values for Y based on the production function

Column E = values for k = K/L (calculated based on columns A and C)

Column F = values for y (calculated using y = Af(k) or Y/L)

i. This output per worker (y) continues to grow forever, unlike our basic Solow model. Why?

ii. What is the growth rate of y after 25 periods? (Paste the relevant parts of your spreadsheet [e.g. first few periods and periods around t=100] into the box so that we can understand your work.)

iii. One of our growth accounting approximation equations was %Y = %A +%K + (1-)%L. We know %L = 0 and in the Solow model with growth in A it turns out that %K = %Y. Use this equation and information to solve for %Y. It should almost match your value from (ii).