Using Excel, create a plot that has k in the x-axis, and output, investment, and total depreciation on the y-axis (all in per-capita terms). Show the steady state in your graph. Make sure you label all the axis, and include the legend so the different lines plotted can be identified as y, Inu, and Dep. You will need to upload this into the 'Excel upload' folder, so make sure you save your changes and that each spreadsheet is properly labeled.

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Chapter1: Making Economics Decisions
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4. Using Excel, create a plot that has k in the x-axis, and output, investment, and total
depreciation on the y-axis (all in per-capita terms). Show the steady state in your
graph. Make sure you label all the axis, and include the legend so the different lines
plotted can be identified as y, Inv, and Dep. You will need to upload this into the
'Excel upload' folder, so make sure you save your changes and that each spreadsheet
is properly labeled.
Transcribed Image Text:4. Using Excel, create a plot that has k in the x-axis, and output, investment, and total depreciation on the y-axis (all in per-capita terms). Show the steady state in your graph. Make sure you label all the axis, and include the legend so the different lines plotted can be identified as y, Inv, and Dep. You will need to upload this into the 'Excel upload' folder, so make sure you save your changes and that each spreadsheet is properly labeled.
Solow Model
Consider a Solow growth model like the one discussed in class, but incorporating the
possibility of less than full employment. Let t denote a period. The production function is
Y; = zK; [e,L]*¬,
so that given the current TFP z4, the capital input K, and the labor input N = eL, firms
produce output Y; in period t. Here e € [0, 1] denotes the proportion of the labor force L
that is employed at each point in time. If e = 1 the economy is at full employment, with
e = 0, on the other hand, everyone is unemployed. Total resources satisfy
Y; = C; + I,
where C; denotes aggregate consumption, I aggregate investment, and Y; is GDP. Assume
that people invest a constant proportion s of their income, so that aggregate investment
satisfies
It = sY;
and capital evolves according to
K+1 = K,(1 – 8) + I,
%3D
where ổ denotes depreciation. This function tells us how capital next period is related to
current capital, investment, and depreciation. In the book, you have seen the expression
written as
AK = I – 8K,
note that the two are equivalent.
Transcribed Image Text:Solow Model Consider a Solow growth model like the one discussed in class, but incorporating the possibility of less than full employment. Let t denote a period. The production function is Y; = zK; [e,L]*¬, so that given the current TFP z4, the capital input K, and the labor input N = eL, firms produce output Y; in period t. Here e € [0, 1] denotes the proportion of the labor force L that is employed at each point in time. If e = 1 the economy is at full employment, with e = 0, on the other hand, everyone is unemployed. Total resources satisfy Y; = C; + I, where C; denotes aggregate consumption, I aggregate investment, and Y; is GDP. Assume that people invest a constant proportion s of their income, so that aggregate investment satisfies It = sY; and capital evolves according to K+1 = K,(1 – 8) + I, %3D where ổ denotes depreciation. This function tells us how capital next period is related to current capital, investment, and depreciation. In the book, you have seen the expression written as AK = I – 8K, note that the two are equivalent.
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