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Review Question for Solow Growth Model Question 1~5. [40 points] Consider the Solow growth model without population growth. Production function is...
Consider the Solow growth model without population growth. Production function is given by ???? = ????^1/3 ????^2/3 . The parameters of the model are given by s = 0.2 (saving rate) and δ = 0.05 (depreciation rate). Let k denote capital per worker; y output per worker; c consumption per worker; i investment per worker.
Q1) Rewrite production function ???? = ????^1/3 ????^2/3 in per-worker terms. Also, find the steady-state level of the capital stock, ????^*
Q2) What is the “golden rule” level of k for this economy? Recall that the golden rule level of the capital stock ????^???? maximizes consumption per worker in steady-state.
Q3) Suppose that a benevolent social planner wishes to obtain ???? = ????^???? in steady-state. What is the associated savings rate ????^???? that should be imposed by the social planner to support ????^???? ?
Q4) Compare your result ????^???? in the previous part with the given saving rates s = 0.2. To obtain ????^???? , do citizens need to save more or less? Also, plot the graph of y=f(k), δk, sf(k) and ????^???? f(k)
Q5) Choose “two” out of the following economic policies that could help the social planner implement ????^???? in a real-world situation. [5]
