answer part a, b and c please! 4. Suppose an economy described by the Solowmodel has the following production function:Y = K¹/² (LE) ¹/².1/21/2a. For this economy, what is f(k)?b. Use your answer to part (a) to solve for thesteady-state value of y as a function of s, n, g,and 6.c. Two neighboring economies have the aboveproduction function, but they have differentparameter values. Atlantis has a saving rate of28 percent and a population growth rate of 1percent per year. Xanadu has a saving rate of 10percent and a population growth rate of 4percent per year. In both countries, g = 0.02and 8 0.04. Find the steady-state value of y foreach country.

The Solow Growth model explains the long term economic growth. The long term economic growth is…

Answered: 4. Suppose an economy described by the…

4. Suppose an economy described by the Solow model has the following production function: Y=K¹/2 (LE) ¹/2 a. For this economy, what is f(k)? Hae: a colro for the

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Problem 1. Consider the Solow-Swan growth model, with a savings rate, s, a depreciation rate, 8, and a population growth rate, n. The production function is given by Y = AK + BK³3/4L1/4 where A and B are positive constants. Note that this production is a mixture of Romer's AK model and the neoclassical Cobb- Douglas production function. • (i) Does this production function exhibit constant returns to scale? Explain why. • (ii) Does it exhibit diminishing returns to physical capital? Explain why. (iii) Express output per person, y =, as a function of capital per person, k =. • (iv) Write down an expression for y/k as a function of k and graph. (Hint: as k goes to infinity, does the ratio y/k approach zero?) (v) Use the production function in per capita terms to write the fundamental equation of the Solow-Swan model. • (vi) Suppose first that sA 8 + n. Draw the savings and depreciation curves, making sure to label the steady state level of capital(if it exists). Under these…
4. Suppose that the Indonesian economy can be explained by the Solow model using the following production function: Y = K (LE) ² , where E is the efficiency of labor. a. Derive the production function reflecting per-efficiency-unit-of-labor (in this case; y = fik) = Y/EL). b. Use the answer in (a) to find the steady-state value of y as a function of s, n , g, and d. c. Now suppose that the Malaysian economy also has the above production functions, but they have different parameter values. Indonesia has a savings rate of 28 percent and a population growth of 1 percent per year. While Malaysia has a savings rate of 10 percent and a population growth of 4 percent per year. Both Indonesia and Malaysia have g = 0.02 and d = 0.04. Determine the steady-state values of y in the two states.
Country A and country B both have the production function Y= F(K,L)= K 1/2 L 1/2 Assume that neither country experiences population growth nor technological progress and that 5% of capital depreciates each year. Assume further that country A saves 10% of output each year and country B saves 20% of output each year. Using your answer from part (a) and the steady-state condition that investment equals depreciation, find the steady-state level of capital per worker for each country. Then find the steady-state levels of income per worker and consumption per worker. (b) Suppose that both countries start off with a capital per stock per worker of 2. What are the levels of income per worker and consumption per worker? Remembering that the change in the capital stock is investment less depreciation, use a calculator to show how the capital stock per worker will evolve over time in both countries. For each year, calculate income per worker and…
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