Question: Let us consider a Solow growth model in which the aggregate output/income at time t for country /: Yt is described by the following aggregate


Let us consider a Solow growth model in which the aggregate output/income at time t for country /: Yt is described by the following aggregate production function: Yi = ( Ki ) 1 (hill )B where Ki is the aggregate physical capital in country /, h' is the human capital per capita country /, L't is the aggregate population size in country / and B' E (0,1) is the labour sha of output parameter in country /. The equilibrium law of motions of the physical capita per capita: k; from time t to time t+1 in country / is governed by the following equation: ki+1 - ki = ryt - (n' + 8 ) ke 1 + ni where yt is the output per capita in country i, n' E (-1, +co) represents the growth rate parameter of the population in country i, y' E (0,1) denotes the investment rate parameter country / and S' E (0,1) is the depreciation rate parameter in country i. a. Write-down the production function in per capita units for country i. (5 points) b. Derive the steady-state income per capita formula for country / and the steady-state income per capita gap formula between country / and country j. (10 points)
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