SOLUTION: Consider the Solow growth model, with production function given by Y = K ^ 0.5L ^ 0.5, where Y = product, K = capital stock, L = number of workers. In this economy there is neither

Question 1119608: Consider the Solow growth model, with production function given by Y = K ^ 0.5L ^ 0.5, where Y = product, K = capital stock, L = number of workers. In this economy there is neither population growth nor technological progress. The savings rate is 40% and the capital stock depreciation rate is 10%.
1. Calculate the capital stock per stationary worker.
2. Calculate the level of the product per worker in steady state.
3. Use the Solow diagram to explain what happens to the level of output per worker if the savings rate rises to 20%. Remember to compare the two stationary states by analyzing the transition trajectory.
4. Is it correct to say that the change in the saving rate has permanently reduced the growth rate of output per worker? Justify.
Answer by solver91311(24713) (Show Source): You can put this solution on YOUR website!

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John

My calculator said it, I believe it, that settles it

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