Problem: Suppose that the economy's production function is Y = √K √AN that the savings rate s is equal to 16% and that the rate of depreciation is equal to 10%. Suppose further that the number of workers grows at 2% per year and that the rate of technological progress is 4% per year.

Required:

a. Find the steady-state values of the variables listed below 1. The capital stock per e ective worker. 2. Output per e ective worker. 3. The growth rate of output per e ective worker. 4. The growth rate of output per worker. 5. The growth rate of output.

b. Suppose that the rate of technological progress doubles to 8% per year. Recompute the answers to part (a). Explain. 1

c. Now suppose that the rate of technological progress is still equal to 4%, but the number of workers now grows at 6% per year. Recompute the answers to part (a). Are people better o in (a) or in (c)? Explain.