1 derive the fundamental equation of the solow model2

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Reference no: EM13353600

1. Derive the fundamental equation of the Solow model

2. Country A as well as country B both have the production function

a. Does this production function have constant returns to scale? Clarify.

b. What is the per-worker production function, y = f(k)?

c. Assume that neither country experiences population growth nor technological progress as well as that 5 percent of capital depreciates each year. Assume further that country A saves 10 percent of output each year as well as country B saves 20 percent of output each year. Using your answer from part (b) as well as the steady-state condition that investment equals depreciation, finds the steady-state level of capital per worker for each country. Then find the steady-state levels of income per worker as well as consumption per worker.

Reference no: EM13353600

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