Answer to Question #137037 in Economics for mahnoor safder

Question

This part considers a modified version of the Solow growth model. Suppose the production function is given by F(K, bN) = Kα (bN) 1−α , where b is the labour augmenting technology, which grows at a rate f, i.e., bt+1 = (1 + f)bt . For simplicity, assume that the total factor productivity z = 1, and the population is constant, i.e., Nt = N for all t. The rest of the model is the same as in the standard Solow model in the textbook. Especially, the aggregate capital stock evolves according to Kt+1 = It + (1 − d)Kt . And assume that the economy is still closed, and there is no government. For any aggregate variable X, let the lower case letter x be the variable per effective unit of worker; that is x = X bN . 1. List all the equilibrium conditions of this model.

Answer 1

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