Q5) Solow Growth ModelBased on Abel, Bernanke and Croushore, 10th edition, Chapter 6, Numerical Problems No. 5.An economy has the per-worker production functionYt =3k95whereYtis output per worker and k, is the capital-labor ratio. The depreciation rate is 8 = 0.1,and the population growth rate is n = 0.05. Saving isSt = 0.3Y;where S; is total national saving and Y, is total output.a. Define the steady state of this economy. (Hint: see definition in slides.)b. What are the steady-state values of the capital-labor ratio, output per worker, andconsumption per worker?c. Repeat Part (a) for a saving rate of 0.4 instead of 0.3.

A production function expresses the technological relationship between the quantities of physical…

Answered: Based on Abel, Bernanke and Croushore,…

ENGR.ECONOMIC ANALYSIS

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Chapter1: Making Economics Decisions

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1) The depreciation rate of capital in the US is 8 = 0.043 and the population growth rate is g₁ = 0.007. Moreover, Y/K is around 0.35 on average over the last 60 years in the US (see the graph below). If the saving rate is s = 0.2 in the US, then find the long-run growth rate of average income in the US according to the Solow's model. (Note: To cross-check Compare your theoretical result with the actual growth rate of average income in the US which is 2%.) 0,43 0,41 0,39 0,37 0,35 0,33 0,31 0,29 0,27 0,25 1950 1953 1956 1959 1962 1965 Y/K in the US 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010
3). Let's consider the Solow Model without technology advancement. Y(t)=2K(t)^(1/2)*L(t)^(1/2) The population growth rate=0.02 Capital accumulation is s*Y(t)-d*K s=0.2, d=0.03 d is the capital depreciation rate. In the steady state, please calculate the following measurements. (a)Capital per capita A. 16 В. 24 С. 36 D. 48 Е. 64 F. None of the above (b)Marginal product of capital (Hint: The first derivative of Y with respect to K) А. 1 В. 1/2 С. 1/4 D. 1/8 E. 1/16 F. None of the above
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= 2. Consider a Solow growth model in which the production function is Yt AK²N₁¹/2, where A = 1. Moreover, assume that the depreciation rate is d = 0.02, the rate of population growth is n = 0.02, and the saving rate is s = = 0.2. a. Compute the value of the capital stock per worker in steady state. b. Draw a graph that represents the steady-state equilibrium of the model. c. Suppose that the capital-labor ration in year t is 90. What will the level of the capital- labor ratio be in year t+1? Will it increase or decrease in future periods? Explain. d. Compute the rate of change of the capital labor ratio between time t and t + 1. How does it compare to the rate of growth of the capital-labor ratio in steady state?
Consider the following Solow diagram, indicating two sep-arate savings rates, 0.2 and 0.4: Suppose the savings rate is 0.2. At the steady state, what is capital per worker? What is output per worker? How much is saved per worker? Suppose the population growth rate is equal to the depreciationrate. Solve for n and d.
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Suppose that the per hour worked form of the production function for an economy is given by y = 10k03 The depreciation rate is 11%, the saving rate is 21%, and the growth rate of labor hours is 7%. The steady-state capital-labor ratio for this economy is (Round your response to two decimal places.)
an economy is given by y=k^( 1/3). The depreciation rate is 16%, the saving rate is 26%, the growth rate of the labor force is 4%, and the growth rate of labor-augmenting technological change is 4%. Given these features, this economy's steady-state level of capital per effective worker is (Enter your response rounded to two decimal places.)

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