What are the long run levels of capital

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Reference no: EM131002126

Consider the Solow model without technological progress (A= 1). The production function is given by y=k1/2, the savings rate is 30%, the population growth rate is 2% and the depreciation rate is 10%.

a) What are the long run levels of capital, income and consumption per capita?

b) Is the current savings rate the one that maximizes consumption? If not, what is the savings rate that does?

c) Suppose that the depreciation rate increases to 20%. Graph this situation.

d) Calculate the new long run levels of capital, income and consumption per capita.

e) How do the aggregate growth rates (that is of Y, K and C) compare between the two equilibria?

Reference no: EM131002126

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