1. Consider the Solow model where total national saving (St) is given by the following St...
1. Consider the Solow model where total national saving (St) is given by the following
St = sYt − hKt
The term, −hKt, reflects the idea that when wealth (as measured by the capital stock) is higher, saving is lower (Wealthier people have less need to save for the future).
(a) Find the steady state values of per worker capital, output, and consumption
(b) What is the effect on the steady state of an increase in h
Homework Answers
Ans:-
Total national savings St is equal to,
Here ,total production is denoted by 
Capital is 
and Capital intensity is 
actual investment on per unit labours 
output given by per unit labour 
The value of Savings per head,
At steady state, national savings is equal to ,
The break even investment is the amount which is invested so
that the capital intensity 
does not decline down
Here, output is 
Consumption is equal to,
Effective labour is 
When the value of 
increases, the output denoted by increases.
worker capital 
and cnsumption 
decreases.
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