Economics 314: Suggested Solutions to HW 3
TA: Romita Mukherjee
September 25, 2008
1
[Page 90, 1]
(1)
If you double
L
(0), then by the formula for steady state per capita capital
k
*
= (
sA
n
+
δ
)
1
1

β
, we can easily check that
k
*
is not affected by change in
L
(0), which means
K
*
must rise exactly by the same amount to offset
the effects of a rise in
L
(0)
.
Because of CRS production function, we can
say that
K
*
rises by the same amount as the rise in
L
(0) to offset any
effect on
k
*
.
(2)
If the economy is in steady state, then the long run growth rate is zero,
irrespective of the value of
n
.
But if
n >
, then the per capita output
decreases, since there are more people to share the pie.
(3)
See Barro page 78.
(4)
Solow model predicts conditional convergence.
So subject to the fact
that the economies under consideration have the same parameter values
n, s, A, β
&
δ
, the economies converge to the same steady state
k
*
.
For
the 112 economies here, we are not sure whether the relevant parameters
are same or not. So we cannot say that this finding conflicts the finding
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 Fall '07
 MBIEKOP
 Economics, Macroeconomics, Steady State, per capita, k2

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