Using the Solow model for a country with the production function Y=AK.25N.75. a. Show graphically what happens
Question:
Using the Solow model for a country with the production function Y=AK.25N.75.
a. Show graphically what happens to kss when a very poor country starts in steady state equilibrium in 1990 when the government uses policy to increase the countries savings rate?
b. Calculate steady states: k1990, k2008, k1990, c2008, c1990, y1990 and y2008 Assuming the following values: in 1990 a savings rate of 15%, population growth of 15%, total factor productivity of 2, and depreciation of 5%, and by 2008 the savings rate is 30%, population growth is 15%, total factor productivity is 2, and depreciation is 5%.
c. Suppose that in 1990 instead of increasing savings the country received a foreign aid package. Show graphically and compare what could happen to kss in the standard Solow model and also the poverty trap model when they receive the foreign aid.
Microeconomics Principles, Problems and Policies
ISBN: 978-1259450242
20th edition
Authors: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn