Question 1:Fact I:Consider the following setup that follows the standard Solow model in Country A.There are...

Question 1:Fact I:Consider the following setup that follows the standard Solow model in Country A.There are N consumers,each
endowed with one unit of available time.Consumers do not value leisure and they divide output between consumption and savings
according to the following rule:a fraction s of output is saved,and the rest is consumed.There is a representative firm that has a Cobb-
Douglas production technology of the form Y=zF(K,N),where K denotes capital,N denotes Labour,z is(Total Factor Productivity
（TFP).Initially country A had 100 units of Capital,144 units of labour and population growth rate was 0.01.Suppose you are given
the fact that in this economy depreciation d is 0.09 and at steady state,the output per-capita could be expressed as y*=(k*)05.Now,
consider the unfortunate situation where a disease took several lives,reducing the number of labour force equal to 81 units.
1.1 Describe and explain changes/effect of this disease on country A's per-capita output,and per capita capital in the steady
state,comparing these with the initial steady state that was prevailing before the disaster.(Note:you are supposed to
describe and explain changes in detail,following Solow Model.The numbers are provided to give you more details
about the economy,but you are not required to provide mathematical derivations/numbers for this question).
1.2 If you were illustrating the old and new steady state in a diagram,with per-capita capital in x-axis,describe how your
graph would change before and after the disease.Would you expect the growth rate of output per worker in country
A smaller or greater than it was before the disease?

Solutions

Expert Solution

Rahul Sunny answered 2 weeks ago

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