Consider a closed economy in which the depreciation rate is 10% per year, the rate of...

Consider a closed economy in which the depreciation rate is 10% per year, the rate of population increase is 2% per year, the rate of technological progress is 1% per year Andy the households save 30% of their income. Suppose the aggregate production function is; Y=f(K, AL)= 9K^4/5 (AL)^1/5 Where Y is output, K is capital, A is the level of technology and L is labor input.

a) Derive the production function in per effective worker terms.

b) Solve for the steady-state values of capital per effective worker (k*), output per effective worker (y*), consumption per effective worker (c*), and savings per effective worker (s*).

c) Derive the equation for the growth rate of output per worker, the growth rate of capital per worker, the growth rate of output and growth rate of capital. What are the values of the growth rates derived?

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Expert Solution

Rahul Sunny answered 1 year ago

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