Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Consider the following production function: Y = AK + BKL1- -CX Assume that the law of motion for capital is Kt+1 = sY4 + K-8K4
Consider the following production function: Y = AK + BK"L1- -CX Assume that the law of motion for capital is Kt+1 = sY4 + K-8K4 (a) Use Excel to produce a graph of output over time for 200 years, assuming s = 0.2, A = B = 1, 8 = 0.05, L = 1, a = 0.3 and a capital stock at date t = 0 equal to 1. (b) Does growth get exhausted as in the basic Solow model? (c) Compute the marginal product of capital m(K). (d) How does m(K) behave as K +00? (e) Does this production function satisfy the Inada conditions? (f) Explain why sustained growth is possible in this model. (g) Assuming factors are paid their marginal product, compute the income share of labor, 8L(K). (h) How does sl(K) behave as K +00? (i) Does the long-term behavior of the model square with what the data say about the distribution of national income between labor and capital? Consider the following production function: Y = AK + BK"L1- -CX Assume that the law of motion for capital is Kt+1 = sY4 + K-8K4 (a) Use Excel to produce a graph of output over time for 200 years, assuming s = 0.2, A = B = 1, 8 = 0.05, L = 1, a = 0.3 and a capital stock at date t = 0 equal to 1. (b) Does growth get exhausted as in the basic Solow model? (c) Compute the marginal product of capital m(K). (d) How does m(K) behave as K +00? (e) Does this production function satisfy the Inada conditions? (f) Explain why sustained growth is possible in this model. (g) Assuming factors are paid their marginal product, compute the income share of labor, 8L(K). (h) How does sl(K) behave as K +00? (i) Does the long-term behavior of the model square with what the data say about the distribution of national income between labor and capital
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started