Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Hello, this is an macroeconomic question. Letters A through F are all relevant to the main question. Thank you! 5) In this question we are

Hello, this is an macroeconomic question. Letters A through F are all relevant to the main question. Thank you!

image text in transcribed
5) In this question we are going to work through the logic of nding the steady-state in Solow Growth model. The production function is Y = 3KO'ZSL0'75 and the saving rate is 12%, the depreciation rate is 9%, and the population growth rate is 3% The rst step is to find the per worker production function. Divide both sides of the production function by L, then simplify the algebra. Finally, let y = Y/L, and = K/L, and substitute those in. You should end up with a function that is y =f(k) To find the steady-state we need to solve the following equation. Ak = sf (k) (n + 6)]: = 0 We have k) from part a) and S, n, 5 are all given. Plug in and solve for k*, the steady-state value of k. Now that we have k*, what is y*? (plug back in to the equation from part a). Notice that Sf(k) = i* = investment = national saving. Plug in and find 1*. Finally, notice that 0* = y* - i*. What is c*? The key to finding the Golden Rule is to solve f '(k) = (n + 6)Where f '(k) is the marginal product or derivative of y with respect to k. Find the function for f '(k) here. Plug in to the Golden Rule equation and solve for the Golden Rule level of k. Because s is a variable with the Golden Rule, we would have to find consumption using c = y , (n + c3)k. What is the Golden Rule level of consumption

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Hostile Money Currencies In Conflict

Authors: Paul Wilson

1st Edition

075099178X, 9780750991780

More Books

Students also viewed these Economics questions