3. a) Consider the capital accumulation equation: k=ska - Sk i) where s is the constant...

 

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3. a) Consider the capital accumulation equation: k=ska - Sk i) where s is the constant savings rate and the constant depreciation rate. dk Show that the steady state is stable; i.e., <0 at the steady state. dk (20) Show that =sea-1)logk - 8 and, by linearizing around the steady state k log level of capital (denoted by log k), use this result to show ii) k = = 8(a − 1)(log k-log k*) and give intuition for this expression. (40) 3. a) Consider the capital accumulation equation: k=ska - Sk i) where s is the constant savings rate and the constant depreciation rate. dk Show that the steady state is stable; i.e., <0 at the steady state. dk (20) Show that =sea-1)logk - 8 and, by linearizing around the steady state k log level of capital (denoted by log k), use this result to show ii) k = = 8(a − 1)(log k-log k*) and give intuition for this expression. (40)

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ANS WER M ason s total taxable employment income for 2... View the full answer