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Consider a country in which Y = 200 K^(2/5)N^(3/5) Assume in this country they save 20% of their income, population grows at 3% per year, and...
Consider a country in which Y = 200 K^(2/5)N^(3/5) Assume in this country they save 20% of their income, population grows at 3% per year, and depreciation of capital occurs at 10% per year. Use the Solow model. a. Compare the effectiveness of i) a 50% increase in the savings rate (to 30%), ii) a 67% decline in the population growth rate (to 1%), and iii) a 10% increase in productivity (to 220). That is, for each, give the percent by which it increases long-run average income (y*) and long-run average consumption (c* )b. Give one policy each that could be undertaken to accomplish i)-iii). Which policy has the greatest impact on long-run well-being (assuming each policy has zero costs)?
