(a) Explain the role of capital, labor, and technology in the Solow growth model. (b) Illustrate the steady-state equilibrium in the Solow growth model using a graph, and explain how changes in the savings rate and technological progress affect the steady-state equilibrium.
- (a) Explain the role of capital, labor, and technology in the Solow growth model.
(b) Illustrate the steady-state equilibrium in the Solow growth model using a graph, and explain how changes in the savings rate and technological progress affect the steady-state equilibrium.
2. Consider an economy with the following production function:
Y = K^0.3 * (AL)^0.7, where Y is output, K is capital, L is labor, and A is the level of technology.
(a) Calculate the marginal product of capital (MPK) and the marginal product of labor (MPL).
(b) If the capital stock (K) is 100, the labor force (L) is 200, and the level of technology (A) is 2, find the level of output (Y) in this economy.
3. Suppose there is a negative demand shock that causes the aggregate demand equation in an economy to change from:
AD1: Y = 2000 - 100P
to
AD2: Y = 1800 - 100P
The
AS: Y = 400 + 50P
(a) Calculate the initial
(b) Calculate the new equilibrium price level (P2) and real output (Y2) after the shock.
(c) Illustrate the changes in the AS-AD graph.
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