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QUESTION 2: [Marks: 6] Consider a labour augmenting Solow growth model represented by CobbDouglas production: 1' = K a (AL)1' , savings rate s, depreciation
QUESTION 2: [Marks: 6] Consider a labour augmenting Solow growth model represented by CobbDouglas production: 1' = K a (AL)1'" , savings rate s, depreciation rate 3, population growth rate 11, and rate of technological progress equal to g. Consider the following empiric a1 observations for the Canadian economy: " Capital stock (K) is 2.5 times GDP (Y) i.e. K = 2.5Y, population growth {11) is roughly 2% ' Depreciation (6 K) accounts for 10% of GDP (Y) Le. 10% of (YIK) ' GDP (Y) grows at a rate of 3% Capital owners' share of output (a) is roughly 30% A) Based on the above data, is Canadian economy currently at the golden rule level of capital? If not then based on these data, what is the golden rule level of capital
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