7. (20%) The Solow model and the capital income share. a) Discuss the data and assumptions you need to measure the value of a in the production function. b) Assume an economy saves according to the following rule “(accounting) profits are always reinvested, wages consumed". Derive the savings rate in this economy. Find the steady state level of capital per capita for this economy. c) Discuss what is special about the steady state you characterized in b).

7. (20%) The Solow model and the capital income share. a) Discuss the data and assumptions you need to measure the value of a in the production function. b) Assume an economy saves according to the following rule “(accounting) profits are always reinvested, wages consumed". Derive the savings rate in this economy. Find the steady state level of capital per capita for this economy. c) Discuss what is special about the steady state you characterized in b).

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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