Exercise 2: Growth and development = Countries 1 and 2 have the production function: Yt A₁KL, where country 1 has Total Factor Productivity (TFP) of A₁ = 25, country 2 has TFP A₂ = 100, and a = 0.35 for both. In the two countries population is constant and there is no technological progress. Every year capital depreciates by 6% in both countries. Country 1 saves 40% of output, and country 2 saves 20%. a) Write down the function of production per unit of labor. Suppose the two countries start with an initial capital stock (per unit of labor) of 500, what are the initial income and consumption per unit of labor in both countries? b) Determine their steady state levels of capital, income and consumption per unit of labor. c) Determine the difference in their steady state level of income per unit of labor, and how much of that difference is due to differences in TFP and how much is due to differences in capital per unit of labor. d) Suppose now that country 2 suddenly has access to the country 1 level of technology. What would you expect to happen both in the short run and in the long run?

= 2. Consider a Solow growth model in which the production function is Yt AK²N₁¹/2, where A = 1. Moreover, assume that the depreciation rate is d = 0.02, the rate of population growth is n = 0.02, and the saving rate is s = = 0.2. a. Compute the value of the capital stock per worker in steady state. b. Draw a graph that represents the steady-state equilibrium of the model. c. Suppose that the capital-labor ration in year t is 90. What will the level of the capital- labor ratio be in year t+1? Will it increase or decrease in future periods? Explain. d. Compute the rate of change of the capital labor ratio between time t and t + 1. How does it compare to the rate of growth of the capital-labor ratio in steady state?

Country A and Country B both have the production function Y = F(K,L) = K¹/32/3 neither country experiences population growth or technological progress and that 20 percent of capital depreciates each year. Assume further that country A saves 10 percent of output each year and country B saves 30 percent of output each year. Now suppose that both countries start in year 1 with a capital stock per worker of 1. In what year will consumption in country B be higher than consumption in Country A? An excel spreadsheet may help simplify your calculation. You will need to round your calculations to 3 decimal places. O O O 5 6 4 Assume that 07

Consider a country with a nominal gross domestic product (GDP) of $1.0, trillion in 2013 and $1.1 trillion in 2018. In the same period the population decreased by 2% and price levels increased by 4%. What is the economic growth rate for this country? Ⓒ2% Ⓒ4% Ⓒ6% Ⓒ8% 10%  Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer.  Take care of plagiarism. Answer completely. You will get up vote for sure.

You are given the production function Y= AK H14 N 2, where A = 4. The population growth rate n is 0.025, the depreciation rate d is 0.075 (both physical and human capital depreciate at the same rate), and the growth rate of autonomous factors is zero. Investment 1 is the sum of two components, investment in physical capital Ig and investment in human capital Iµ. The fraction of GDP that goes to physical capital investment is SK = 0.05 and the fraction of GDP that goes to human capital investment is SH = 0.05. (i) Convert the production function to a function relating Y/N to both K/N and H/N. (ii) Find the steady-state physical capital-labor ratio and the steady - state human capital - labor ratio. (iii) Find the steady – state per person output. 2.