1. Extended Solow Model with Population Growth y=k^1/4 MPK-1/4 k -3/4) depreciat
ID: 1121892 • Letter: 1
Question
1. Extended Solow Model with Population Growth y=k^1/4 MPK-1/4 k -3/4) depreciation rate 0.06, while n = 0.02 a. Write down steady state condition b. Find the golden rule saving rate to maximize consumption at steady state c, c , y at long run equilibrium? 2. Discuss the major limitations of the basic Solow Model 3. With labor efficiency incorporated into the Solow model, explain why even in the steady state, total output, output per worker, capital per worker, consumption per worker can increase (at different rate.Explanation / Answer
1) a) we know af steady state change in capital stock is zero
So investment=decrease in capital stock
Sy=(n+d)k
sk1/4=0.08k
k3/4=s/0.08
k=(s/0.08)1.33
B) golden rule staedy state is the saving rate which maximises consumption per worker.
Thus golden rule of capital accumulation in saving rate=0.25
C=(1-s)y=(1-s)k0.25 and k=(0.25/0.08)1.33=4.567
Y=1.4618 and C=1.096
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