DSE 2011 Question 57: Harrod–Domar and Solow growth models
Setup, from Q55 of the paper:
Consider an economy with aggregate production Yt=A(Kt)α(Lt)1−α, A>0, 0<α<1, both factors fully employed. A constant fraction s of output is saved and invested, augmenting next period's capital; there is no depreciation. Labour grows at constant rate n. Let A=20, α=21, s=41, n=101. The steady state level of output per worker is
(Same Solow economy.) The golden rule value of capital per worker is
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Setup, from Q55 of the paper: Consider an economy with aggregate production Yₜ=A(Kₜ)^α(Lₜ)^(1-α), A>0, 0<α<1, both factors fully employed. A constant fraction s of output is saved and invested, augmenting next period's capital; there is no depreciation. Labour grows at constant rate n. Let A=20, α=1/2, s=1/4, n=1/10. The steady state level of output per worker is (Same Solow economy.) The golden rule value of capital per worker is (A) 25 (B) 2500 (C) 5000 (D) 10000
Also written as: Setup, from Q55 of the paper: Consider an economy with aggregate production Y_t=A(K_t)^(alpha)(L_t)^(1-alpha), A>0, 0<alpha<1, both factors fully employed. A constant fraction s of output is saved and invested, augmenting next period's capital; there is no depreciation. Labour grows at constant rate n. Let A=20, alpha=1/2, s=1/4, n=1/10. The steady state level of output per worker is (Same Solow economy.) The golden rule value of capital per worker is
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What this question tests
This question is on The golden rule, part of Harrod–Domar and Solow growth models in Economics of Growth and Development.
The saving rate that maximises consumption per worker in the steady state.
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