This part considers a modified version of the Solow growth model. Suppose the production function is given by F(K,bN) = Kª(bN)!-ª where b is the labour augmenting technology, which grows at a rate f, i.e., b+1 = (1+ f)bt. For simplicity, assume that the total factor productivity z = 1, and the population is constant, i.e., N, = N for all t. The rest of the model is the same as in the standard Solow model in the textbook. Especially, the aggregate capital stock evolves according to Kt41 = I + (1 – d)K1. And assume that the economy is still closed, and there is no government. For any aggregate variable X, let the lower case letter æ be the variable per effective unit of worker; that is r = . Show that the production technology specified above satisfies the assumption of con- stant returns to scale. ; List all the equilibrium conditions of this model. Using the equilibrium conditions you listed above, write down an expression that describes the evolution of the aggregate capital stock, Kį over time. Briefly explain why this expression is not particularly convenient for our analysis of the model?

This part considers a modified version of the Solow growth model. Suppose the production function is given by F(K,bN) = Kª(bN)!-ª where b is the labour augmenting technology, which grows at a rate f, i.e., b+1 = (1+ f)bt. For simplicity, assume that the total factor productivity z = 1, and the population is constant, i.e., N, = N for all t. The rest of the model is the same as in the standard Solow model in the textbook. Especially, the aggregate capital stock evolves according to Kt41 = I + (1 – d)K1. And assume that the economy is still closed, and there is no government. For any aggregate variable X, let the lower case letter æ be the variable per effective unit of worker; that is r = . Show that the production technology specified above satisfies the assumption of con- stant returns to scale. ; List all the equilibrium conditions of this model. Using the equilibrium conditions you listed above, write down an expression that describes the evolution of the aggregate capital stock, Kį over time. Briefly explain why this expression is not particularly convenient for our analysis of the model?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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