2. (Solow growth model with continuous time and technological progress)The economy satisfying the assumptions of the Solow model is characterized by the Cobb-Douglas production function of the form F(K, A · L) = K“(A · L)'-«. The saving rate is s, capitaldepreciation rate d, the population is growing at the rate of n, and technological progressincreases at the rate of g.%3Da. Calculate k in the steady state.b. What is the level of s consistent with the condition of the golden rule? What would theinterest rate be then?c. (*) How does the increase in s affect k, ỹ and r? What determines the reaction of c?Assuming that consumption increases after the savings rate grows, present on thegraph changes in Y, r and C over time on the adjustment path to the new steady state.

Production function : F( K, AL) = Ka (AL)1-a Let us convert this into per effective labor terms :…

2. (Solow growth model with continuous time and technological progress) The economy satisfying the assumptions of the Solow model is characterized by the Cobb- Douglas production function of the form F (K,A · L) = K“(A · L)!-«. The saving rate is s, capital depreciation rate d, the population is growing at the rate of n, and technological progress increases at the rate of g. a. Calculate k in the steady state. b. What is the level of s consistent with the condition of the golden rule? What would the interest rate be then? c. (*) How does the increase in s affect k, ỹ and r? What determines the reaction of c? Assuming that consumption increases after the savings rate grows, present on the graph changes in Y, r and C over time on the adjustment path to the new steady state.

2. (Solow growth model with continuous time and technological progress) The economy satisfying the assumptions of the Solow model is characterized by the Cobb- Douglas production function of the form F (K,A · L) = K“(A · L)!-«. The saving rate is s, capital depreciation rate d, the population is growing at the rate of n, and technological progress increases at the rate of g. a. Calculate k in the steady state. b. What is the level of s consistent with the condition of the golden rule? What would the interest rate be then? c. (*) How does the increase in s affect k, ỹ and r? What determines the reaction of c? Assuming that consumption increases after the savings rate grows, present on the graph changes in Y, r and C over time on the adjustment path to the new steady state.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter20: Economic Growth

Section: Chapter Questions

Problem 20RQ: For a high-income economy like the United States, what aggregate production function elements are...

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