1. This question deals with the Solow Growth Model. Recall that the law of motion for...

 

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1. This question deals with the Solow Growth Model. Recall that the law of motion for capital per capita is: sAk + (1 - d)k 1+n Suppose that I give you the following parameters: A = 1 n = 0.1 d= 0.1 s = 0.6 a=0.5 a) Solve for the steady state capital per capita, ks, as a function of the model parameters using the law of motion. Solve for the steady state capital per capita, consumption per capita, css and output per capita, b) Depict your steady state on a diagram with k on the horizontal axis. Be sure to label output, consumption and capital per capita. c) Show the effects of an increase in the savings rate on capital per capita in the steady state. Discuss how the economy will transition to the new steady state. d) Suppose that the aggregate production function is now: Y = AK N¹ Hº Where A is productivity, K is physical capital, N is population and H is human capital. Hint: The natural logarithm growth rate formula is useful here: 9 Int+1- ln xt • Derive a growth accounting equation that relates growth in GDP to growth in productivity, physical capital, population and human capital. • Use your equation to discuss how investments in human capital may be mistaken for "productivity" in the traditional growth accounting framework. 1. This question deals with the Solow Growth Model. Recall that the law of motion for capital per capita is: sAk + (1 - d)k 1+n Suppose that I give you the following parameters: A = 1 n = 0.1 d= 0.1 s = 0.6 a=0.5 a) Solve for the steady state capital per capita, ks, as a function of the model parameters using the law of motion. Solve for the steady state capital per capita, consumption per capita, css and output per capita, b) Depict your steady state on a diagram with k on the horizontal axis. Be sure to label output, consumption and capital per capita. c) Show the effects of an increase in the savings rate on capital per capita in the steady state. Discuss how the economy will transition to the new steady state. d) Suppose that the aggregate production function is now: Y = AK N¹ Hº Where A is productivity, K is physical capital, N is population and H is human capital. Hint: The natural logarithm growth rate formula is useful here: 9 Int+1- ln xt • Derive a growth accounting equation that relates growth in GDP to growth in productivity, physical capital, population and human capital. • Use your equation to discuss how investments in human capital may be mistaken for "productivity" in the traditional growth accounting framework.

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ans A Let the production function be YAKL0 Or YL AKL Or yAko i Here ... View the full answer