Assume a Solow model that uses Cobb-Douglas production function with and α = 0.5 for a...

Assume a Solow model that uses Cobb-Douglas production function with and α = 0.5 for a society that saves 40% of their income but sees their capital depreciate at a rate of 5%, population grows at a rate or 2% and technology grows at a rate of 3%.
1. Determine the steady state level of capital per worker.
2. Now assume that the economy experiences population growth of 5%, what would their savings rate need to be to make sure that the capital per worker amount in “a” is unchanged?

Expert Solution

Rahul Sunny answered 1 year ago

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