- In The Solow Diamond Model The Dynamics Of The Economy Is Characterized By The Following Equation 1 B Ki 1 A 1 A 1 (59.83 KiB) Viewed 41 times
In the Solow - Diamond model, the dynamics of the economy is characterized by the following equation: 1 B ki+1 = A(1 - ako, 1+nl+B where kų = is per capita capital stock at date t, K, is the aggregate capital stock, L, is the size of the population and grows at the rate of n, L4+1 = (1 + n)L,, is the discount factor, 148 is the saving rate, A is the productivity of the economy, 1 - a is labor share, and a is capital share. The steady-state per capita consumption is written as = c= Ak" - (n +)k, where c is the steady-state per capita consumption, A is the productivity level, k is the per capita capital stock, 8 is the depreciation rate of capital, and n is the population growth rate. Use 1 a = 3/8 = 0.8, A = 18.9, n = 0.05,8 = 0.1. Compute the steady-state value of k . Note that in steady state, ky = kx+1 = KCE holds. kE is the steady-state per capita capital stock in the competitive economy.