homework3 2009_final

# Homework3 2009_final - k go higher than k gr 2 Consider the Solow model for two economies Each shares a Cobb-Douglas production function and the

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ECN/APEC 6000/7230 Fall 2009 Homework 3 Due 9/24/09 1) While some parameters of the Solow model are essentially observable, like n and g , other parameters are not. For example, the size of the capital stock has to be inferred from investment measures, so α , δ , and K / Y depend on these measures. Likewise, we assumed that some portion of government spending should be viewed as investment when we set s = 0.25. If we assume only private investment should be counted toward the capital stock, we would get s = 0.15. a) If we vary K / Y from 2.5 to 3.5, setting = 1/3 and s = 0.25, how much do k * and the long-run rate of convergence to k * change? b) If we vary from 0.3 to 0.36, setting K / Y = 3 and s = 0.25, how much do k * and the long-run rate of convergence to k * change? c) If we vary s from 0.15 to 0.3, setting K / Y = 3 and = 1/3, how much do k * and the long-run rate of convergence to k * change? d) In the neighborhood of parameters covered by (a)-(c), are we in danger of having
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Unformatted text preview: k * go higher than k * gr ? 2) Consider the Solow model for two economies. Each shares a Cobb-Douglas production function and the following parameters: = 1/3, = 0.058, g = 0.015, n = 0.01, and s = 0.25. Furthermore, for both A (0) = L (0) = 1. However, the first country starts relatively poor with K 1 (0) = 0.01 and the second relatively rich with K 2 (0) = 0.1. a) Using Excel or comparable software, plot on the same graph the path of k 1 ( t ) and k 2 ( t ) for t = 0 to 100. b) Plot a graph of y 1 ( t ) and y 2 ( t ) for t = 0 to 100. c) Plot a graph of c 1 ( t ) and c 2 ( t ) for t = 0 to 100. d) Plot a graph of y 1 ( t )/ y 2 ( t ) for t = 0 to 100. e) Based on your results, how well do you think the Solow model can account for the disparity of incomes across countries?...
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## This note was uploaded on 01/09/2011 for the course ECON 7230 taught by Professor Feigenbaum during the Spring '10 term at Utah Valley University.

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