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Suppose the economy's production function is: and both the marginal propensity to save (5) and the depreciation rate (5) are equal to 0.10. Further, suppose

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Suppose the economy's production function is: and both the marginal propensity to save (5) and the depreciation rate (5) are equal to 0.10. Further, suppose that the number of workers grows at 1.5% per year (it = 0.015) and the rate of technological progress is 3.5% per year (s = 0.035). .1 Write the production mction in efciency units of labour, and draw it in a graph. Add to the graph a line representing the amount of investment that is required to keep K/AL constant over time. a F ind the steady-state values of: i. The capital stock per effective worker n. Output per effective worker in. The growth rate of output a Suppose that the rate of technological progress increases to 7% per year. Recalculate the answers to (i) through to (iii) above. m Now suppose that the rate of technological progress is 7% per year, and the number of workers grows at 3% per year. Show the new steady state in the Solow diagram and compute the steady-state growth rate of output. End

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