1. Ensure that you can write down the accumulation equation (using a Cobb- Douglas production function) in units of capital per effective worker. Derive the expressions for the capital stock per effective-worker, output per effective- worker and consumption per effective-worker in the steady state. Do not submit this but make sure that you can start from the accumulation equation for capital (in levels) and arrive at these steady state expressions of variables in efficiency units using less than three minutes.
2. Provide a definition for the steady state of the Solow model when there is positive population growth and positive technological progress. Typically, it is believed that technological progress contributes in a positive manner to output growth. Why is it that higher values of g result in lower values of y^* (that is, lower values of output per efficiency-unit of labour in the steady state)? Is that contrary to the popular belief that technological process aids in output growth?
3. Explain why diminishing returns to capital in the aggregate production function results in the possibility of over- or undersaving in the steady state of the Solow growth model.
4. If we assume that Australia and the USA these two economies have reached their steady states, what must be the rate of technolog- ical progress to support such an assumption if this data is viewed through the lens of the Solow model with population growth and technological progress?