Solow model. One economy evolves as in the baseline Solow model. The production function is Cobb-Douglas with a = 0.5. The number of workers is constant at N = 100million. The saving rate is 22% of income and the stock of capital depreciates a 5% every year. In the current year t, there are Kt = 625 million units of installed capital.Write down the dynamic equation for capital accumulation and find the change in capital per worker from year t to year t + Report the rates of growth of capital per worker, output per worker and consumption per worker from year t to year t + 1.Find the amounts for capital per worker, output per worker, and consumption per worker in steady state. Make a graphical representation of the accumulation of capital per worker in year t and discuss the future evolution to reach the steady state (long-run)Calculate the golden-rule level of capital per worker for this economy and report the gain of consumption per worker obtained relative to the value in steady

Solow Model Analysis1. Dynamic Equation and Change in Capital per Worker:The Solow model uses a…

Answered: Solow model. One economy evolves as in…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Solow model. One economy evolves as in the baseline Solow model. The production function is Cobb-Douglas with a = 0.5. The number of workers is constant at N = 100

million. The saving rate is 22% of income and the stock of capital depreciates a 5% every year. In the current year t, there are Kt = 625 million units of installed capital.

Write down the dynamic equation for capital accumulation and find the change in capital per worker from year t to year t + Report the rates of growth of capital per worker, output per worker and consumption per worker from year t to year t + 1.
Find the amounts for capital per worker, output per worker, and consumption per worker in steady state. Make a graphical representation of the accumulation of capital per worker in year t and discuss the future evolution to reach the steady state (long-run)

Calculate the golden-rule level of capital per worker for this economy and report the gain of consumption per worker obtained relative to the value in steady

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