Question 6. The Solow model In an economy, there are L = 16 workers and their productivity is A = 0.04. People save s = 0.35 of their income. The production function is Y = √√√L. The depreciation rate is 8 = 0.04 (a) Currently, there is Ko = 64.33. Find the output, the investment, the consumption, and the next year's capital. (b) Write down the steady state condition. Find the steady state capital, output, investment, and
Question 6. The Solow model In an economy, there are L = 16 workers and their productivity is A = 0.04. People save s = 0.35 of their income. The production function is Y = √√√L. The depreciation rate is 8 = 0.04 (a) Currently, there is Ko = 64.33. Find the output, the investment, the consumption, and the next year's capital. (b) Write down the steady state condition. Find the steady state capital, output, investment, and
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Transcribed Image Text:Question 6. The Solow model
In an economy, there are L = 16 workers and their productivity is A = 0.04. People save s =
0.35 of their income. The production function is Y = √A√K√L. The depreciation rate is 8 = 0.04
(a) Currently, there is Ko = 64.33. Find the output, the investment, the consumption, and the
next year's capital.
(b) Write down the steady state condition. Find the steady state capital, output, investment, and
consumption.
(c) Draw the Solow model graph in the coordinates of capital and investment. Show current
capital, next year's capital, and the steady-state capital.
(d) The marginal product of capital is MPK = 0.5√A√K/VL. Write down the consumption
maximization condition. Find the golden rate of savings.
Answers Provided:
6. (a) 6.42, 4.17, 2.25, 64 (b) 49, 5.6, 1.96, 3.64 (d) 50%
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