Solow Growth Model Q2 copy 2

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Solow Growth Model Questions Solow Growth Model: Rewriting the Solow growth model with both population growth n and technology growth g in per capita per efficiency unit terms we get the equations where kt is capital per capita per efficiency unit in period t; yt is output per capita per efficiency unit in period t. (a) Find an expression for the steady-state value of capital per capita per efficiency unit. (b) There is a decrease in the population growth rate, n. Does this cause the steady state value of capital per capita per efficiency unit to increase, decrease, or stay the same? There is an decrease in the population growth rate, n. Does this cause the steady-state value of capital per capita to increase, decrease, or stay the same? increase. (c) In 2 to 3 sentences give intuition for your answer to the previous point. Maintaining any given level of n becomes less 'costly' since there are now less 'newborns' each period who need to be provided with capital. This leads a increase in the steady-state level. (d) Does this decrease in the population growth rate, n cause the value of capital per capita to increase, decrease, or stay the same? What about the growth rate of capital per capita? Explain your answer. Answer is essentially the same as capital per capita per efficiency unit, except that now the capital per capita in addition to the level shift from lower n also is growing at the (unchanged) rate g (there will be a gradual transition in which growth rate is temporarily higher).
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