answer for (e)

For the rest of this question, suppose there are two countries with an aggregate production function Y=zK0.3N0.7. Further suppose the following values for the model's parameters: s= 0.25,d=0.1 and n=0.02 in both countries. (c) Suppose z=1 in country A. Use equation (3) and the given values for the model's parameters and production function to calculate the steady-state level of income per capita, yA, and the steady-state level of capital per worker, kA, in country A. (d) Suppose z=2 in country B. Use equation (3) and the given values for the model's parameters and production function to calculate the steady-state level of income per capita, yB, and the steady-state level of capital per worker, kB, in country B. (e) As measured by the steady-state level of income per capita, how much richer is country B relative to country A ? (f) Will country A converge with country B in terms of per capita income? Explain your answer. Consider the Solow growth model. Recall that upper-case variables denote aggregate variables and lower-case variables denote per worker (or per capita) variables. Capital is assumed to evolve according to the following equation: K=I+(1d)K,(1) where K denotes aggregate capital in the future period and K is capital in the current period. There is a closedeconomy model without a government, so in a competitive equilibrium the income-expenditure identity is Y=C+I. (a) Use the income-expenditure identity and equation (1) to find an expression for the evolution of per-worker capital. In other words, show that equation (1) can be re-written as follows: k=1+nszf(k)+1+n(1d)k. (b) Denote the steady-state level of capital per worker as k. Show that in the steady state, equation (2) implies the following equilibrium equation: szf(k)=(n+d)k