Question

1 2 2. (A siulated economy) Let Y F(Kt, Lt) AK Lg. The discrete time version of the capital accumulation equation is given by Lo-1 and labor grows at a rate of n-0.01. A-1, Ko 0.01 and 0.07 a) Assume that s 0.2. Find the level of consumption in the economy in periods 1,2,3,4 and 100. b) Repeat the computations in (a) assuming s 0.3. c) Assume the economy is in a steady state and s0.3. Explain what happens to consumption over time after s increases to s 0.33. d) Do the same as in part (c) but assuming that s increases to s 0.5.

Please explain and show me the process with answer. Thank you!

Answer 1

Given that keep column A For time period 't' column B for constant A column C For variable kt column C For variable k_t^1/3 column E For variable L_t column F for variable L_t^2/3 column G For variable yt Formulae in row 2 are A_2 = 0 B_2 = 1 C_2 = K_0 = 0.01 D_2 = K_0^1/3 = 0.01^(1/3) E_2 = L_0 = 1 F_2 - L^2/3_0 = 1^(2/3) G_2 = Y_0 = B_2 * D_2 * F_2 Formulae For row 3 are Follows Formula in row 2 should as A_3 = t = 1 B_3 = A = 1 C_3 = K_1 = ((0.2*G_2) + ((1 - 0.07) * C_2)) where G_2 is y_0 and C_2 is K_0 \r\n D_3 = K_1 (1/3) = C^3^(1/3) E_3 = L_1 = E_2 * 1.01 F_3 = L_1^2/3 = E_3^(2/3) G_3 = Y_1 = B_3 * D_3 * F_3 Formulae of row 3 till 102 which L = 100 S = 0.2 level consumption