Unformatted text preview: f the current
!
$
level of capital. Write your answer in terms of the and the parameters of the #
model
"
only.(d) An increase. in A looks like it is a free lunch – there is no cost to it. In the case of
(Use the fact that
!)
to obtain a solution for the growth rate of percapita GDP as a function of the current
a relevant rules are that if ! then ! # and ! has to come at the cost of a lower (initial) level
(a)Then increase in the investment rate, it # then
and the parameters of the model
! level of capital. Write your answer in terms of the
of %
consumption. ! " "
only. (Use the fact that
!)
Since A and L are constant, they have zero growth rates. So.we get
!"#
Question 5.8 (b)Since L is constant the growth rate of percapital output is just equal to the
(a)The output. So we can use the result from if !
then
!#
and ! # then
growth rate of totalrelevant rules are that (a)
!
%
"
"
!
Since A and L are constant, they have zero growth rates. So we get
!"#
" " (b)Since L is constant the growth rate of percapital output is just equal to the
growth rate of total output. So we can use the result from (a) 6 !"#
Note that
" ! # " so
" ! # " or
" ! # " Now use the solution for K* from lectures
" !
If we substitute this into the above equation we get
" ! # " or !$ % Finally ! " # &$ % ' Note that when K(t) is very low (a country is very poor) the SolowSwan model
implies that it should have a relatively high growth rate. 7...
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This document was uploaded on 03/15/2014.
 Spring '11
 Macroeconomics

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