Question
This is a 4 part questions covering the SOLOW GROWTH MODEL. ____________________________________________________ Suppose that output per worker is given by y=3k 0.5 , n=0.03 (i.e.3%),
This is a 4 part questions covering the SOLOW GROWTH MODEL.
____________________________________________________
Suppose that output per worker is given by y=3k0.5, n=0.03 (i.e.3%), d=0.07 (i.e. 7%), and that the savings rate is 20%.
Draw a diagram that shows the golden rule level of capital-labor ratio and maximum consumption (hint: c should be on y-axis).Also draw in k_max (maximum k) on the same diagram. [do not calculate; just draw]
Use the info above to calculate the steady state levels of the following 4 variables: capital per worker, output per worker, consumption per worker, and savings per worker.
Now suppose that the economy is NOT yet at steady state, and that the economy is where the capital-labor ratio is equal to 25.How much is the economy investing in capital at this point?i.e. calculate the investment per worker that takes place at this level of k.
Use the Solow Growth model to show (GRAPH) and to discuss the impact of a FALL in population growth rate (n).In the discussion, elaborate on the impact of the shock on the steady state level of k, y, and c.Make sure you provide intuitive economic reasoning for the movement of the economy from the old steady state to the new steady state.LABEL DIAGRAM!
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started