Re: ISI 2010

Posted by duck on May 04, 2012; 4:31am
URL: http://discussion-forum.276.s1.nabble.com/ISI-2010-tp7524446p7525914.html

Hi Ritu.. :)

Q8) Part(a)
Y= sqrt(KL)
=> f(k) = sqrt(k)  where k = K/L (capital-output ratio)
At steady state:
s*f(k) = k*n
=> 0.20*sqrt(k) = k*0.05
=> k = 16
So, we have capital output ratio = 16.

For rate of growth of output>
Y= L*f(k)
take log and differentiate, you'll get:
At Steady state, rate of growth of output = rate of growth of labour = 0.05
[Note: Its coming out to be independent of savings]

For Rate of growth of savings:
S= s*Y
Again take log and differentiate, you'll get:
At steady state, Rate of growth of Savings = Rate of growth of output
Therefore, Rate of growth of Saving = Rate of growth of labour = 0.05

For wage rate>
As we assume pefectly Competitve markets, so wages = Marginal product of labour
So, you'll get w=2

Part(b)
As we found out that rate of growth of putput is independent of savings. So, an increase in savings will have no effect on the growth rate of output.

Part(c)
In solow model, savings is "exogenous" and it only leads changes in the level and "not" the growth rates.