In this question, you will explore how changes in the saving rate and the rate of technological progress affect an economy’s growth. In addition, you will examine how the golden rule saving rate depends on the production function. Consider the Solow (neoclassical) growth model with aggregate production function Y = K^alpha(AN)^(1-alpha). Each period lasts a year.

ENGR.ECONOMIC ANALYSIS
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In this question, you will explore how changes in the saving rate and the rate of technological progress affect an economy’s growth. In addition, you will examine how the golden rule saving rate depends on the production function. Consider the Solow (neoclassical) growth model with aggregate production function Y = K^alpha(AN)^(1-alpha). Each period lasts a year.

 

 

 

1/3
4%
16%
3.0%
1.0%
JA
IN
S
Table 1: Benchmark Parameter Values – Solow model
Transcribed Image Text:1/3 4% 16% 3.0% 1.0% JA IN S Table 1: Benchmark Parameter Values – Solow model
(3) We will now contrast these results with a change in the rate of technological
progress. Suppose instead that at time t = 0, the rate of technological progress
increases to 4% per year. With all other parameters as in Table 1 (in particular,
with the saving rate s back at its benchmark value of 16%), calculate and plot
the time-path of log output per worker for 100 years after the change in the
rate of the technological progress (for t = 1, 2, ..., 100), again assuming A, = 1.
Transcribed Image Text:(3) We will now contrast these results with a change in the rate of technological progress. Suppose instead that at time t = 0, the rate of technological progress increases to 4% per year. With all other parameters as in Table 1 (in particular, with the saving rate s back at its benchmark value of 16%), calculate and plot the time-path of log output per worker for 100 years after the change in the rate of the technological progress (for t = 1, 2, ..., 100), again assuming A, = 1.
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