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5. In the Solow growth model, the production function is given by Y; : 10KE'4L9'6. Suppose that the saving rate is 50% and the depreciation
5. In the Solow growth model, the production function is given by Y; : 10KE'4L9'6. Suppose that the saving rate is 50% and the depreciation rate is 10%. (a) (b) If capital per worker in period 0 (k0) is 100, how much is 131? If capital per worker in period 0 (k0) is 100, is the economy at the steady state7 above the steady state, or below the steady state? Defend your answer. Calculate the rate of growth of output per worker in percentage terms between periods 0 and 1. Calculate the rate of growth of output per worker in percentage terms between periods 1 and 2. Do your answers to (c) and (d) support the statement that the rate of growth of output per worker in percentage terms is faster the farther away the economy is from its steady state? Defend your answer. Suppose now that capital per worker in period 0 is 300. Draw a graph (with time on the :raxis and log of output per worker on the yaxis) of log of output per worker and show how the economy converges to the steady state. Answer the same question as in (f) but assume now that capital per worker in period 0 is 750
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