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Consider the Solow Growth Model with technology given by Y = zF(K, N) = zK^(1/2)N^(1/2)
, savings rate= 0.2 and depreciation rate=0.1. Both population growth and technological growth are 0. (Note: lower case
letters denote per capita variables e.g. y=Y/N).

(a) What are the steady state values of k, y, c and i ?

(b) What are the values of k and y if the economy operates at the "Golden Rule" level of capital accumulation?

(c) Imagine that you want to "drive" this country in the "Golden Rule" levels of k and y. What is the saving rate that you have to impose? What would be the level of c?

(d) Assuming that you impose the new saving rate. What would be the immediate and long run effects on c, k, and y? Draw the path of these variables.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M942788

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