5. Consider the Solow growth model learnt in the class where output is given by Cobb-Douglas production function as Y, = A, K; L; and capital accumulation is given by: AK, = 5 Y; – d K,where s is the constant savings rate and d is the depreciation rate. a) Mathematically solve for the steady state level of capital. How does the steady state level related to the savings rate (s) and the depreciation rate (d). b) What is the steady state level of capital, if saving rate (s) = 10%, depreciation rate (d) = 5%, A̟ = 2 and ī = 1.5?

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5. Consider the Solow growth model learnt in the class where output is given by Cobb-Douglas
production function as Y, = A, K, L; and capital accumulation is given by: AK, = 5 Y, -
d K,where s is the constant savings rate and d is the depreciation rate.
a) Mathematically solve for the steady state level of capital. How does the steady state level
related to the savings rate (s) and the depreciation rate (d).
b) What is the steady state level of capital, if saving rate (s) = 10%, depreciation rate (d) =
5%, A, = 2 and L = 1.5?
Transcribed Image Text:5. Consider the Solow growth model learnt in the class where output is given by Cobb-Douglas production function as Y, = A, K, L; and capital accumulation is given by: AK, = 5 Y, - d K,where s is the constant savings rate and d is the depreciation rate. a) Mathematically solve for the steady state level of capital. How does the steady state level related to the savings rate (s) and the depreciation rate (d). b) What is the steady state level of capital, if saving rate (s) = 10%, depreciation rate (d) = 5%, A, = 2 and L = 1.5?
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