Question 1 1(a) In the Solow Growth Model the output function for the economy is given by: Y = K 1/3 (L x E)2/3 (Y = output; K= capital stock; L = labour force; E = efficiency of labour so that L x E = labour force measured in efficiency units) The depreciation rate () is 0.05, the growth rate of the population (n) is 0.03 and the rate of advance in technology (g) is 0.07. Use mathematical analysis to calculate the golden rule steady state capital stock per efficiency unit of labour (k*gold). 1(b) Create a schedule that confirms that the result in part (a) is correct. The schedule should include the following seven columns: the savings rate, the steady state capital stock per efficiency unit of labour, the steady state output per efficiency unit of labour, the sum of the depreciation rate, population growth rate and the rate of advance in technology all with respect to the steady state capital stock per efficiency unit of labour, the steady state consumption per efficiency unit of labour, the marginal product of capital and finally the difference between the marginal product of capital and the sum of the depreciation rate, population growth rate and the rate of advance in technology.

Question 1 1(a) In the Solow Growth Model the output function for the economy is given by: Y = K 1/3 (L x E)2/3 (Y = output; K= capital stock; L = labour force; E = efficiency of labour so that L x E = labour force measured in efficiency units) The depreciation rate () is 0.05, the growth rate of the population (n) is 0.03 and the rate of advance in technology (g) is 0.07. Use mathematical analysis to calculate the golden rule steady state capital stock per efficiency unit of labour (k*gold). 1(b) Create a schedule that confirms that the result in part (a) is correct. The schedule should include the following seven columns: the savings rate, the steady state capital stock per efficiency unit of labour, the steady state output per efficiency unit of labour, the sum of the depreciation rate, population growth rate and the rate of advance in technology all with respect to the steady state capital stock per efficiency unit of labour, the steady state consumption per efficiency unit of labour, the marginal product of capital and finally the difference between the marginal product of capital and the sum of the depreciation rate, population growth rate and the rate of advance in technology.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. In the Solow model, if investment (I=sY) is lower than depreciation (dK), then…. A. Depreciation (dK) in the following period will be higher than in the current period. B. Capital stock (K) in the following period will be lower than in the current period. C. Per-capita GDP (y) in the following period will be the same as in the current period. D. Overall GDP (Y) in the following period will be higher than in the current period. The answer is B - - Can you show work for it, graph the representation for it
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