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Unformatted text preview: 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 + ) 1 1- , 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, & , 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 of the Solow model....
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