The economy is in the steady state, Microeconomics

Assume in the Solow growth model that s=.25, n=.02, d=.08, and f(k)=k^3.

A)    Assume that z=2.  What is the steady state level of capital per worker and consumption per worker?

B)    Now, Assume that initially z=2 and the economy is in the steady state you measured in part (a).  Then assume that z falls to 1.8 permanently.  What is the new steady state?  Explain capital per worker and output per worker in every of the first 10 period after z falls, and Discuss this in a figure.

C)    Now, assume alternatively that z=2 initially the economy is in the steady state, and then z falls to 1.8, but now for only 10 periods.  Then, z=2 forever.  Explain the path followed by capital per worker and output per worker in the first 10 periods after z falls.  Again, show this in a figure.

D)    What conclusions can you draw from your results in part (a) through (c)? Discuss.

Posted Date: 3/19/2013 5:42:46 AM | Location : United States







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