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ps2_114

# ps2_114 - Econ 114 Javier Birchenall Due date Tuesday...

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Econ 114 Javier Birchenall Due date: Tuesday, October 12, 2010 Problem set 2: The Solow model and savings rates The following problem set studies the Solow model and investigates the relationships between savings rates and economic growth. The data is available in an Excel spreadsheet on the class web page, econ.ucsb.edu/ ~ jabirche/teaching.html Plan to spend 8 hours on these questions. Please return the problem set on time (next Tuesday during class), remember you have the chance to miss one and only one, use it wisely. If you have any problems regarding the questions please contact me by e-mail: [email protected] . Good luck! I. The Solow model (theory) Assume that the production function is Cobb-Douglas, i.e., Y = AK α L 1 α . 1. Show that the marginal product of capital, MPK , is MPK = ∂Y ∂K = αAK α 1 L 1 α , and that capital’s share of income is MPK × K Y = α You might want to consult the Appendix to Chapter 3 in the textbook.
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