Consider the Solow growth model with a Cobb-Douglas production function with capital sharea, a constant savings rate s, a constant depreciation rate 8, and a constant population growthrate n (0 < s, 8, n < 1). Suppose a equals 1/3, and TFP initially is A1 > 0.1. Derive the law of motion of capital per capita.2. Derive the steady state levels of capital and output per capita.3. Explain intuitively why there is a steady state.

Answered: 1. Derive the law of motion of capital…

1. Derive the law of motion of capital per capita. 2. Derive the steady state levels of capital and output per capita. 3. Explain intuitively why there is a steady state.

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Question

Consider the Solow growth model with a Cobb-Douglas production function with capital share
a, a constant savings rate s, a constant depreciation rate 8, and a constant population growth
rate n (0 < s, 8, n < 1). Suppose a equals 1/3, and TFP initially is A1 > 0.
1. Derive the law of motion of capital per capita.
2. Derive the steady state levels of capital and output per capita.
3. Explain intuitively why there is a steady state.

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