07 Jun Question Consider the Solow-Swan model we developed in class. The parameter values are given
Question
Consider the Solow-Swan model we developed in class. The parameter values are given
in the table below:
Parameter Value
α 0.33
s 0.27
A 10
n 0.02
δ 0.05
L(0) 1319
K(0) 263,800
4.1 At time 0, is the capital-labour ratio increasing, decreasing or constant? Explain
and complement your answer using diagrams.
4.2 If the economy is on its balanced-growth path by period 19, what is the level of the
capital stock in that period? And the capital-labour ratio?
4.3 Find the steady state level of income per-capita, consumption per capita and the
real interest rate.
4.4 Let s vary and plot steady state consumption per-capita as a function of s at the
values of the remaining parameters.
4.5 Find the value of s that maximises steady state consumption per capita. Comment.
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