The Solow Model in Reality Here is again the quick review of some algebraic properties of exponents: kakb=ka+b kak-b-ka-b k=1/kb kakbka-b k = k Ifk=a then k=a Questions 1-11 and A use the following information. Suppose an economy with a capital-output ratio (K/Y) is about 2; an average growth rate of GDP of about 5% per year and a depreciation rate (6) is about 3% per year. Also, suppose that this economy is at its steady state. 1. If K/Y=2, then k/y equals [HINT: Plug in the definition of k and y into k/y and simplify] (a) 2 (b) 2.5 (c) 5 (d) Cannot be determined; we need values for the labor force (L) and the efficiency of labor (E) 2. The value for the sum of the parameters n + g at the steady state is (a) 2.5 (b) 0.03 (c) 0.05 (a) 0 (b) 5% (d) Cannot be determined, we need the rate of growth of population (n) and the rate of growth of labor productivity (g), which are not given (c) 2% (d) 3% (k*g) = k*ga k/g= (k/g) 3. The growth rate of total capital (K) at the steady state is [HINT: What's the growth rate of Y at the SS? What did we say about the K/Y ratio at the SS?] (a) 0.04 (b) 0.18 (c) 0.16 (c) 0.2 4. The saving rate is [HINT: Use the steady-state condition s*y = (6+n+g)*k and solve for s]