uppose 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 ?
uppose 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 ?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
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
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 4,5,6
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