Economia V; Instructor: Marco Del Negro

Problem set 10; Solutions

a) The steady state growth rate of total output, of capital, and of productivity is not affected by changes in the savings rate. As you know, in the Solow growth model the steady state growth rate is affected only by changes in the rate of grwoth of polpulation or technological progress. b) However, the steady state levels of the capital-to-labor ratio will be negatively affected by the decrease in savings, and so will output-per-worker, and per-capita consumption. In fact the formula for steady state capital-to-labor ratio is:

$$k^*=(\frac{sA}{\delta+\lambda})^{\frac{1}{1-\alpha}}$$

c) See figure.