SOLUTION: Consider a Solow growth model with the following characteristics: Y = K ^ 1/3 (AL) ^ 2/3 is the aggregate production function, where Y is the product, K is the quantity of capital,

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Question 1119607: Consider a Solow growth model with the following characteristics: Y = K ^ 1/3 (AL) ^ 2/3 is the aggregate production function, where Y is the product, K is the quantity of capital, L is the amount of work and A is the state of technology; n + δ + g = 1/12, where n, δ and g are, respectively, population growth rates, capital depreciation and technological progress; s = 1/3, where s is the saving rate.
1. Calculate the product per effective worker in steady state;
2. Use the Solow diagram to explain what happens to the product level per effective worker if the depreciation rate increases. Remember to compare the two stationary states and analyze the transition trajectory.
3. Does the change in the depreciation rate permanently reduce the level or rate of growth of output per worker? Explain.
4. Explain the relationship between the rate of growth of output per worker at steady state and the rate of technological progress.
Answer by solver91311(24713) About Me  (Show Source):
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