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ECON 202, SPRING 2009
Malhar Nabar
Assignment # 6
Posted: May 5
Due: In my mailbox 11 am, May 12
Note:
covering material from the start of the semester to the most recent topics covered in class.
1.
Solow Model: Theory
An economy is described by the following aggregate production function
Y
=
K
0
:
5
(
el
)
0
:
5
The depreciation rate
on capital is 0.03. The growth rate of the labor force
n
is 0.01. The
growth rate of technology
g
is 0.01. The saving rate is 10 per cent of GDP.
a.
Please write down the "intensive form" of the production (i.e. the production function in per
e/ective worker terms).
b.
Provide the equation that describes the accumulation of capital per e/ective worker in this
economy.
c.
Calculate the steady state levels of capital per e/ective worker and output per e/ective worker.
d.
Calculate the steady state aggregate capital to aggregate output (
K=Y
)
ratio.
e.
Suppose that the saving rate is raised to 15% of GDP. Calculate the new
(
K=Y
)
ratio.
2.
Policy analysis using the Solow Model
You are the newly appointed Chief Economic Adviser to the President. The President is con
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 Spring '08
 Nabar

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