Question
In the Solow - Diamond model, the dynamics of the economy is characterized by the following equation: kt+1=11+n1+A(1)kt, where kt=KtLt is per capita capital stock
In the Solow - Diamond model, the dynamics of the economy is characterized by the following equation: kt+1=11+n1+A(1)kt, where kt=KtLt is per capita capital stock at date t,Kt is the aggregate capital stock, Lt is the size of the population and grows at the rate of n,Lt+1=(1+n)Lt, is the discount factor, 1+ is the saving rate, A is the productivity of the economy, 1 is labor share, and is capital share. The steady-state per capita consumption is written as c=Ak(n+)k, where c is the steady-state per capita consumption, A is the productivity level, k is the per capita capital stock, is the depreciation rate of capital, and n is the population growth rate. Use =12,=0.8,A=18.9,n=0.05,=0.1. Compute the growth rate of the aggregate capital stock, Kt+1KtKt, in steady state where Kt is the stock of capital at time t and Kt+1 is the stock of capital at time t+1
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