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1. Define the following concepts: (a) Capital depreciation (b) Golden rule saving rate 2. Assume that a country's production function is Y = K1/2L1/2, where Y is output, K is capital and L is the fixed labor force. Assume that 10% of capital depreciates per year (6 = 0.10) and that there is no technological progress. a) Write the per-worker production function. b) How is the Golden rule saving rate characterized? c) If the saving rate is s = 0.4, what are capital per worker, production per worker and consumption per worker in steady state? 3. Assume that a country's production function is Y = K1/2(LE)1/2, where Y is output, K is capital, L is population (assumed to be equal to the labor force) and E is labor efficiency. a) Write the production function per effective worker and calculate the steady state values of capital, output and consumption (all per effective worker) as functions of s, 6, n and g. b) At what rate do output and output per worker grow in steady state? c) Assume that the saving rate is 10% (s = 0.1), 4% of capital depreciates per year (6 = 0.04), population grows by 4% per year (n = 0.04) and labor efficiency grows by 2% per year (9 = 0.02). Calculate the steady state values of capital, output and consumption (all per effective worker) in this case. d) What is the Golden rule level of capital per effective worker for this economy? And the Golden rule saving rate? e) Consider now an alternative economy with the same production function, with d and g as above, but with a lower rate of population growth (n = 0.01) and a higher saving rate (s = 0.28). What is the steady state value of output per effective worker for this economy? How much bigger is the steady state level of income per capita in the latter than in the former economy, if they have the same labor efficiency? 4. Read the following 2019 article on Vox by Schivardi and Schmitz on IT and produc- tivity in Southern Europe (based on an academic article published on JEEA in 2020), available in the course's virtual page and here: https://voxeu.org/article/it-revolution-and-southern-europes-two-lost-decades a) What is the source of Southern Europe's lower productivity growth? b) What are the consequences of low management quality? c) How can management quality be improved? NOV 11