Re: ISI ME II 2014

Posted by Ridhika on May 08, 2014; 6:42pm
URL: http://discussion-forum.276.s1.nabble.com/ISI-ME-II-2014-tp7587168p7589057.html

I have one doubt from ISI ME II 2013 Q10..

Consider an otherwise identical Solow model of economic growth where
the entire income is consumed.
(a) Analyse how wage and rental rate on capital would change over
time.
(b) Can the economy attain steady state equilibrium?


Now if s=0

The fundamental equation which suggests s.k = (d+n)k = 0
Then if d or n > 0 it must be that at equilibrium k=0.. so we have the steady state..

But what about part (a) .. if k =0 then y=0.. so does that mean even w and r = 0 ? or can we say nothing about them?