Consider the Solow growth model with a Cobb-Douglas production function with capital sharea, a constant savings rate s, a constant depreciation rate 8, and a constant population growthrate n (0 < s, d, n < 1). Suppose a equals 1/3, and TFP initially is A1 > 0.1. Derive the law of motion of capital per capita.2. Derive the steady state levels of capital and output per capita.3. Explain intuitively why there is a steady state.Now suppose that productivity increases by 10% to A2.4. Derive the new steady state levels of capital and output per capita. Compare them to theold ones.5. In three separate figures, draw the evolution through time of productivity A, capital percapita Kit, and output per capita Yit. Make sure to include several periods of the pre-shocksteady state, the time of the shock, the transition to the final steady state, and severalperiods of the final steady state. Discuss the differences between the two figures.6. Suppose that the economy has converged to its new steady state. Do a growth accountingexercise on output per capita. Howchanges in productivity, how much due to changes in capital per capita?of the change in output per capita was due to7. Does this result reflect well what actually occurred?8. In the last decades, East Asian economies have grown strongly. Some studies attributethis mainly to capital accumulation. Discuss.

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Consider the Solow growth model with a Cobb-Douglas production function with capital share a, a constant savings rate s, a constant depreciation rate 8, and a constant population growth rate n (0< s, 6, n < 1). Suppose a equals 1/3, and TFP initially is A1 > 0. 1. Derive the law of motion of capital per capita. 2. Derive the steady state levels of capital and output per capita. 3. Explain intuitively why there is a steady state.

Consider the Solow growth model with a Cobb-Douglas production function with capital share a, a constant savings rate s, a constant depreciation rate 8, and a constant population growth rate n (0< s, 6, n < 1). Suppose a equals 1/3, and TFP initially is A1 > 0. 1. Derive the law of motion of capital per capita. 2. Derive the steady state levels of capital and output per capita. 3. Explain intuitively why there is a steady state.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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