Exercises - Solow model

1. For A = 1 and a = 0.5, redo the calculations of our numerical example

2. For a savings rate of 20%, a depreciation rate of 10% and the production function of the

production function from the previous question, find out the optimal level of the capital stock by

by doing a numerical simulation in Excel.

3. Evaluate the obvious implication of Solow's model that

countries

less

countries simply need a higher savings rate

4. For a sample of

countries of various types, find:

a. savings rates

b. value of capital stock per worker and per capita

C. the 5-year growth rate of net capital 5

d. the 5-year growth rate of GDP per worker and per capita

5. Consider a closed economy with a stable population and no technical

technical progress. In the case where the economy has not reached a stable capital/labor ratio (

K/N) (i.e. is not at a steady state), explain what should happen:

a. If the current k

K/N ratio is below the k* ratio (in

equilibrium at steady state)

b. If the current k K/N ratio is higher than k*

C. Illustrate your answers using graphs.