Technical Progress in the Solow Model Suppose an economy that follows the assumptions of the Solow model saves a proportion s of its income every period, population grows at rate n, capital depreciates at rate d, and technical progress takes place at rate g. Assume it is not yet at steady state. a) Draw a graph to show initial level of capital k* < kss, output y* as well as the steady state levels of each. Be sure to draw and label the production function, investment and the line of effective depreciation, as well as k*, y*, kss and yss b) Explain what will happen to y* in the short run given this information (i.e. starting where k* < kss), according to the assumptions of the Solow growth model). c)At steady state, what is the growth rate of y*, y and Y? Explain your answers
- Technical Progress in the Solow Model
Suppose an economy that follows the assumptions of the Solow model saves a proportion s of its income every period, population grows at rate n, capital depreciates at rate d, and technical progress takes place at rate g. Assume it is not yet at steady state.
a) Draw a graph to show initial level of capital k* < kss, output y* as well as the steady state levels of each. Be sure to draw and label the production function, investment and the line of effective
b) Explain what will happen to y* in the short run given this information (i.e. starting where k* < kss), according to the assumptions of the Solow growth model).
c)At steady state, what is the growth rate of y*, y and Y? Explain your answers
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