(SOLVED)Consider a version of Solow's Model
Type of Paper: Question-Answer
Academic Level: Undergrad. (yrs 3-4)
Paper Format: APA
Consider a version of Solow's Model: =AKtαLt1−αsYt=Kt+1−Kt+δKtLt=L0(1+n)t 1
a) Rewrite the production function and the equation of capital accummulation using variables normalized by the units of labor, i.e. =K/L;y=Y/L
b) What are the values of and in a steady state? What are the growth rates of aggregate output and aggregate consumption? Consider this different version of Solow's Model:
c) Rewrite the production function and the equation of capital accummulation using variables normalized by the units of effective labor, i.e. =K/(EL);y=Y/(EL).
d) What are the values of and along a balanced growth path? What is the growth rate of aggregate output and aggregate consumption along this BGP?
EXPERT SOLUTION PREVIEW
a) The production function and equation of capital accumulation in this version of Solow's model can be rewritten in terms of variables normalized by units of labor as follows:
y = Y/L = AK/L^(1-a) = Ak^a, where k = K/L
Capital Accumulation Equation:
dk/dt = sAk^a - (d+g)k, where k = K/L
where y denotes output per hour
worked, k denotes capital per hour worked, s denotes savings rate, d denotes
depreciation rate, and g denotes population......
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