Problem 1 - Macroeconomics - please help. Problem 1: Properties of Production FunctionsConsider the following production functions:a) Ya In K + (1 – a) In N, for 0 0c) YK*N, for a> 0, 8 > 0 and a +B<1where K stands for capital and N stands for labor. For simplicity, I have omitted the time index t. For eachfunction, check whether it satisfies the two main assumptions of the Solow Growth Model (SGM), namely:• constant returns to scale• decreasing marginal productivities for both capital K and labor NProblem 2: The Golden RuleConsider the SGM studied in class. We found an explicit expression for its steady statesAk = k* =(1)Let e = denote consumption per capita. As shown on the slides, the steady state level of ct, call itc* = y* - i*, is given bysAc* (1– s) A(2)Find an expression for the saving rate smax that maximizes c". This is often referred to as the golden rulesaving rate. Plot c as a fuunction of s. Can you provide a brief intuition for why it is bell-shaped? Namely,whu ot tho borinning a highor saving rate increases c but nassed a certain threshold c* starts to decline?

Problem 1: Properties of Production Functions Consider the following production functions: a) Y a In K + (1 – a) In N, for 0 0 c) Y K N, for a > 0, 3 > 0 and a +B<1 where K stands for capital and N stands for labor. For simplicity, I have omitted the time index t. For each function, check whether it satisfies the two main assumptions of the Solow Growth Model (SGM), namely: • constant returns to scale • decreasing marginal productivities for both capital K and labor N

Problem 1: Properties of Production Functions Consider the following production functions: a) Y a In K + (1 – a) In N, for 0 0 c) Y K N, for a > 0, 3 > 0 and a +B<1 where K stands for capital and N stands for labor. For simplicity, I have omitted the time index t. For each function, check whether it satisfies the two main assumptions of the Solow Growth Model (SGM), namely: • constant returns to scale • decreasing marginal productivities for both capital K and labor N

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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