Part 2. Multiple equilibria in the Solow Model Consider again the economy of Avataria, which can be described by the Solow model. Avataria has the old depreciation rate of 8% and the production function as in part (d), Y(K,L) = 10(K)¹/2 (L) ¹/2, and its investment rate is equal to its saving rate. However, now Avataria has two saving rates: saving rate is equal to 8%, if the income per capita is below 160, saving rate is equal to 16%, if the income per capita is above 160. (e) What will be the steady-state output per capita in Avataria, if its initial capital- labor ratio is 200? Calculate the exact value. ● (f) What will be the steady-state output per capita in Avataria, if its initial capital- labor ratio is 361? Calculate the exact value. (g) In which case, (e) or (f), do you expect Avataria to have a faster initial growth rate? Explain.

Part 2. Multiple equilibria in the Solow Model Consider again the economy of Avataria, which can be described by the Solow model. Avataria has the old depreciation rate of 8% and the production function as in part (d), Y(K,L) = 10(K)¹/2 (L) ¹/2, and its investment rate is equal to its saving rate. However, now Avataria has two saving rates: saving rate is equal to 8%, if the income per capita is below 160, saving rate is equal to 16%, if the income per capita is above 160. (e) What will be the steady-state output per capita in Avataria, if its initial capital- labor ratio is 200? Calculate the exact value. ● (f) What will be the steady-state output per capita in Avataria, if its initial capital- labor ratio is 361? Calculate the exact value. (g) In which case, (e) or (f), do you expect Avataria to have a faster initial growth rate? Explain.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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