Econ 3311 Texas Tech University Prof. Latchezar Popov Problem Set # 3 Due date: Sunday, October 18th 2020, 11:59 pm (via Blackboard) 1. Solovia has the Cobb-Douglas production function: Y = AK^(a)L 1−^(a) Throughout the problem you can assume that a = 1/3. Also, suppose that the Solow model is an accurate description of the country’s economy. (a) Suppose that in 2019 we have the following data for Solovia: K = 2, 800; L = 350; I = 140; A = 1. Find GDP for Solovia (remember, it’s denoted Y ) and the wage. Also, find output (GDP) per worker. (b) Suppose you have looked at data for Solovia for a few years and conclude that it is at its steady state. Find the savings rate s and the depreciation rate d. (Hint: for savings rate, refer to the class notes. For the depreciation rate, recall that if the country is at the steady state, Investment = Depreciation.) (c) Find consumption per capita. (d) Suppose that the country introduces an ambitious reform program that seeks to improve the access of ordinary citizens to entrepreneurship opportunities, which increases s to 0.25. Suppose that the the program is successful. Find the new steady state capital per worker, output per worker and consumption per worker. Find the change in output and consumption per worker relative to your answers in parts (a) and (c). (e) Now suppose that the government has a new program. In addition to the program to boost saving, it decites fund Research and Development which increases A by 10%