Question: 1. Consider a simple Solow model with no population growth and without technology, so the production function under consideration is of type y = k


1. Consider a simple Solow model with no population growth and without technology, so the production function under consideration is of type y = k s, by further assuming a = 1/3. Suppose that country 1 is currently in its steady state with y, = y* and k, = k*, along with a population L1= 0.5L. Suppose that country 2, with an identical population size of L2 = 0.5L, is also in its steady state, albeit at a lower level. Specifically y2 = 0.5y*. a. What are the growth rates of output for countries 1 and 2, respectively? b. If now two countries get united into a single country with population L. Find out y, output per capita, in terms of y*, right after the unification. c. Assuming that it would take the unified nation 10 years to grow its output per capita to its steady state y*. Calculate the average growth rate during this 10-year period
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
