Suppose that the economy is summarized by the following:Technology (Production Function): Yt = 10 (Kt)0.3 (Lte)0.7Consumption function: Ct = 0.8YtDepreciation rate: 8% (i.e. δ= 0.08)Population growth: 2% (i.e. n = 0.02)Technological growth: 4% (i.e. g = 0.04) QUESTIONS: Find the steady state (long run) equilibrium values of kte, yet, and cet.Show graphically what would be the effect of a increase of the saving rate to s=0.4?Show graphically what would be the effect of an increase in population growth to 0.04?Assuming that in 2013 the US economy is in the steady state and L2013 = Le2013 = 8, what is the value of ke2014, ye2014, ce2014 , k2014, y2014, and c2014 ?Use your answer to e) to calculate the growth rate of ket, yet, cet , kt, yt, and ctBased on your answers to the previous questions and on your knowledge of how the Solow growth model works, explain what policies should a less-developed country pursue to raise its level of income in the long-run? DO PART 4,5,6

Steady state is reached where the per capita variables no longer change. The per capita income,…

Answered: uppose that the economy is summarized…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that the economy is summarized by the following:

Technology (Production Function): Y_t = 10 (K_t)^0.3 (L_t^e)^0.7

Consumption function: Ct = 0.8Y_t

Depreciation rate: 8% (i.e. δ= 0.08)

Population growth: 2% (i.e. n = 0.02)

Technological growth: 4% (i.e. g = 0.04)

QUESTIONS:

Find the steady state (long run) equilibrium values of k_t^e, y^e_t, and c^e_t.
Show graphically what would be the effect of a increase of the saving rate to s=0.4?
Show graphically what would be the effect of an increase in population growth to 0.04?
Assuming that in 2013 the US economy is in the steady state and L₂₀₁₃ = L^e₂₀₁₃ = 8, what is the value of k^e₂₀₁₄, y^e₂₀₁₄, c^e₂₀₁₄, k₂₀₁₄, y₂₀₁₄, and c₂₀₁₄?
Use your answer to e) to calculate the growth rate of k^e_t, y^e_t, c^e_t, k_t, y_t, and c_t
Based on your answers to the previous questions and on your knowledge of how the Solow growth model works, explain what policies should a less-developed country pursue to raise its level of income in the long-run? DO PART 4,5,6

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