Suppose that the economy is summarized by the following: Technology (Production Function): Yt = 10 (Kt)0.3 (Lte)0.7 Consumption function: Ct = 0.8Yt Depreciation rate: 8% (i.e. δ= 0.08) Population growth: 2% (i.e. n = 0.02) Technological growth: 4% (i.e. g = 0.04)   QUESTIONS:  Find the steady state (long run) equilibrium values of kte, yet, and cet. Show graphically what would be the effect of a increase of the saving rate to s=0.4? Show graphically what would be the effect of an increase in population growth to 0.04? Assuming that in 2013 the US economy is in the steady state and L2013 = Le2013 = 8, what is the value of ke2014, ye2014, ce2014 , k2014, y2014, and c2014 ? Use your answer to e) to calculate the growth rate of ket, yet, cet , kt, yt, and ct Based on your answers to the previous questions and on your knowledge of how the Solow growth model works, explain what policies should a less-developed country pursue to raise its level of income in the long-run?                                                                               DO PART 1,2,3

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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Suppose that the economy is summarized by the following:

Technology (Production Function): Yt = 10 (Kt)0.3 (Lte)0.7

Consumption function: Ct = 0.8Yt

Depreciation rate: 8% (i.e. δ= 0.08)

Population growth: 2% (i.e. n = 0.02)

Technological growth: 4% (i.e. g = 0.04)

 

QUESTIONS:

  1.  Find the steady state (long run) equilibrium values of kte, yet, and cet.
  2. Show graphically what would be the effect of a increase of the saving rate to s=0.4?
  3. Show graphically what would be the effect of an increase in population growth to 0.04?
  4. Assuming that in 2013 the US economy is in the steady state and L2013 = Le2013 = 8, what is the value of ke2014, ye2014, ce2014 , k2014, y2014, and c2014 ?
  5. Use your answer to e) to calculate the growth rate of ket, yet, ce, kt, yt, and ct
  6. Based on your answers to the previous questions and on your knowledge of how the Solow growth model works, explain what policies should a less-developed country pursue to raise its level of income in the long-run?                                                                               DO PART 1,2,3
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