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Consider the production function for a closed economy: Y = SKO'S(AN)O'E' where Y is aggregate output, A is technology, K is capital stock and N
Consider the production function for a closed economy: Y = SKO'S(AN)O'E' where Y is aggregate output, A is technology, K is capital stock and N is labour. Capital evolves according to K1 = sY; + (1 )K;. Also, assume s = 0.3, labour force growth gn = 4%, technology growth g4 = 5%, and depreciation y = 3%. (a) Compute the steady-state values of (i) capital stock per effective worker, (ii) output per effective worker and (iii) consumption per effective worker. (b) Compute the steady-state values (i) the growth rate of output per effective worker, (ii) the growth rate of output per worker, and (iii) the growth rate of output. (c) Compute the new steady-state values of (i) capital stock per effective worker, (ii) output per effective worker and (iii) consumption per effective worker. (d) Draw a carefully-labelled diagram to illustrate the effect of the change in the deprecia- tion rate on the economy in the long run
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