1. Consider the Solow growth model. In the current period there are N = 1000 consumers...

1. Consider the Solow growth model. In the current period there are N = 1000 consumers and the population grows annually at a rate of 2%. The production function is given by Y = zK^(α)N^(1−α) where α = 0.4 and z = 1.1. The depreciation rate is δ = 0 and the savings rate is s = 0.2.

a. Find steady-state output and consumption per capita in the current period.

b. Find aggregate output, aggregate consumption and aggregate capital in the current period and after 10 years. By what percentage does aggregate output, aggregate consumption and aggregate capital grow over 10 years?

c. At the beginning of the current period the population growth rate increases to 4% for the current period and in the next period returns to the previous 2% growth rate indeﬁnitely. Calculate output per capita for the next two periods. Calculate aggregate output for the next two periods. Calculate the long-run output per capita.

Expert Solution

I've attached images of handwritten answer for all the three parts.Hope it helps!

Rahul Sunny answered 8 months ago

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