Reference no: EM131484716
Question: The Solow equilibrium income equation 4.5 in the text says that y = Y/L = (s/n) a/1-a, that is, that income per person, y, which is simply total GDP (Y) divided by the population (L), is determined by the ratio of the savings rate, s, (which is the percent of GDP = Y saved) divided by the population growth rate, n, raised to the power, a/1-a, where a is the share of total income, Y, received (and produced) by owners of physical capital and 1-a is the share of total income received by labor.
a What is equilibrium GDP per person, y, if a country has s = 0.3 (i.e. 30 percent), n = 0.022 (i.e. 2.2 percent) and a = 0.33 (i.e. 33 percent)? (Assume y is calculated in $1,000 of US dollars.)
b Now, what will equilibrium income per person, y, be, in $1,000 of US dollars, if population growth is now 0.8 percent, all the other variables the same?
c What is equilibrium y if the savings rate is 14.5 percent, labor's share of income is 60 percent and population growth is 1.4 percent?
y = Y/L = (s/n)a/(1-a)
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