Consider the basic Solow model. Assume that Country A has a production function as following. Y = A√K Where A represents the technology available in the country and & the aggregate capital. Let the national saving rate be equal to 30%, s = 0.3. Also, assume that capital depreciates at a constant rate of 3%, delta = 0.03. a) Now, the economy experiences a positive shock to the idea/technology and A becomes 2 which was originally 1. Relative to the previous steady state level of capital and output, what will happen?
Consider the basic Solow model. Assume that Country A has a production function as following. Y = A√K Where A represents the technology available in the country and & the aggregate capital. Let the national saving rate be equal to 30%, s = 0.3. Also, assume that capital depreciates at a constant rate of 3%, delta = 0.03. a) Now, the economy experiences a positive shock to the idea/technology and A becomes 2 which was originally 1. Relative to the previous steady state level of capital and output, what will happen?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Consider the basic Solow model.
Assume that Country A has a production function as following.
Y = A√K
Where A represents the technology available in the country and & the aggregate capital. Let the national saving rate be equal to 30%, s = 0.3.
Also, assume that capital
a) Now, the economy experiences a positive shock to the idea/technology and A becomes 2 which was originally 1. Relative to the previous steady state level of capital and output, what will happen?
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