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ECON 401
Hartman
Autumn 2010
PROBLEM SET VI
(for Monday, November 22)
1.
This problem deals with the basic SolowSwan model of economic growth with no technical
change.
The savings rate,
s
, is fixed.
Assume that the production function is
1/3
2/3
3
YK
L
where
Y
is output,
K
is the capital stock, and
L
is the input of labor.
Capital accumulates according to
K
I
K
where
I
is gross investment and
is the depreciation rate.
The population grows at the
constant proportional rate
n
.
Each person provides one unit of labor services, and therefore
/
LL n
.
a.
Suppose that
n
003
.,
012
.
, and the savings rate is
s
020
.
.
What is the steady state
value of
/
kKL
?
What is consumption per person in the steady state?
b.
If
n
.
and
.
, what is the Golden Rule value of
k
?
What savings rate,
s
, gives
rise to the Golden Rule?
What is the corresponding steady state consumption per person?
2.
Consider now a SolowSwan model with labor augmenting technical change.
Again, the savings
rate,
s
, is fixed.
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This note was uploaded on 04/04/2011 for the course ECON 401 taught by Professor Staff during the Spring '08 term at University of Washington.
 Spring '08
 Staff
 Macroeconomics

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