Tutorial 4 - Tutorial 4 Q1.) Suppose an economy described...

Tutorial 4
Q1.) Suppose an economy described by the Solow model has the following production
function:
Y = K 1/2 ( LE ) 1/2
a. For this economy, what is f ( k )?
b. Use your answer to part (a) to solve for the steady-state value of y as a function
of s , n , g , and
c. Two neighbouring economies have the above production function, but they have
different parameter values. Atlantis has a saving rate of 28 percent and a population
growth rate of 1 percent per year. Xanadu has a saving rate of 10 percent and a
population growth rate of 4 percent per year. In both countries, g = 0.02 and δ = 0.04.
Find the steady-state value of y for each country.
Q2.) Prove each of the following statements about the steady state of the Solow model with
population growth and technological progress.
.
δ .