# solow - Practice Question for Solow Model The production...

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Practice Question for Solow Model The production function is Y=K 1/3 L 2/3 . (a) Define the output per worker as y =Y/L and the capital per worker as k =K/L. Express the output per work as a function of k . (b) Write set of equations for Solow growth model, i.e. production function, output allocation, and capital accumulation. Then, draw graph of y t vs k t and graph of i t , d.k t , vs k t . Show steady state equilibrium. (c) Assume s=0.2, d=0.1, fill out missing numbers in the following table. Describe the patterns of k t , y t , i t , c t overtime. What are the steady state values for these variables? t k t y t i t c t k t+1 0 2.00 ____ ____ ____ ____ 1 2.05 1.27 0.25 1.02 2.10 2 2.10 1.28 0.26 1.02 2.15 21 2.62 1.38 ____ ____ 2.64 22 ____ ____ 0.28 1.11 2.65 60 2.81 ____ ____ ____ ____ 61 ____ ____ ____ ____ ____ 62 2.82 1.41 0.28 1.13 2.82 (d) What are steady state conditions? Show 2 / 3 * = d s k and 2 / 1 * ) 1 ( - = d s s c in the steady state where “d” is the depreciation rate. “s” is the saving rate. (e) Assume d=0.1. Complete the following table. As saving rate changes, how does it affect the steady state value of k, y, and c? Explain the definition of golden rule saving rate and pick this rate from the table.

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