In the US, real GDP growth over the long run has slowed from about 3% to 2% per year.  How would the Solow model explain this?

 

  1.  In a Solow growth model suppose the production function is y = square root of k, where y = Y/L and k = K/L.  If the economy saves 15% of its income and 5% is the rate of capital depreciation, find the steady state living standard.  If the saving rate increases to 30%, what happens to the living standard?

  1.  Redo problem number 1, but assume that population and the labor force each grow 2.5% per year.

  1.  In the US, real GDP growth over the long run has slowed from about 3% to 2% per year.  How would the Solow model explain this?