Question: 1. Consider the standard Solow model. Suppose the exponent on capital in the Cobb-Douglas production function, Y = AKL, is equal to 1. Let

1. Consider the standard Solow model. Suppose the exponent on capital in

1. Consider the standard Solow model. Suppose the exponent on capital in the Cobb-Douglas production function, Y = AKL, is equal to 1. Let the capital accumulation equation be given by AK+1 I-dk, where d is the rate of capital depreciation. Suppose that investment is equal to I,= SY, where is the percentage of output that is invested. Draw the Solow diagram for the case when s> d. What is the steady state value for capital? Now draw a new Solow diagram for the case when s < d. What is the steady state value for capital? Comment on the results. 105

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