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set10154a - Econ 154b Yale University Spring 2005 Prof....

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Econ 154b Yale University Spring 2005 Prof. Tony Smith HOMEWORK #10 You do not need to turn in this homework assignment but you are responsible for the material it covers. The main purpose of this assignment is to help you study for the final exam. 1. This problem studies a version of the Solow growth model developed in Chapter 6 of the textbook. Suppose that aggregate output in period t is given by: Y t = K 0 . 3 t N 0 . 7 . Labor supply N is assumed to be constant over time, so without loss of generality set N = 1 throughout the rest of this problem (this is just a normalization of the total labor input and does not affect any of the results). Let the depreciation rate d = 0 . 1 and let the savings rate s = 0 . 2. Aggregate capital evolves according to the following law of motion: K t +1 = (1 - d ) K t + sY t . (a) Calculate the steady-state capital stock implied by the law of motion for aggregate capital. Calculate the level of steady-state consumption implied by the steady- state capital stock. (Note: The Solow growth model as developed in Chapter 6 of the textbook assumes that the labor force is growing at rate n and focusses on the dynamic behavior of capital per worker. In this problem, we are assuming that the labor force does not grow: i.e., n = 0. Because N is constant and has been normalized to be equal to 1, total capital, K t , and total capital per worker,
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This homework help was uploaded on 04/06/2008 for the course ECON 154 taught by Professor Bjoernbruegemann during the Spring '07 term at Yale.

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set10154a - Econ 154b Yale University Spring 2005 Prof....

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