Consider the Solow growth model. Suppose that 𝐹(𝐾,𝑁) = 𝑧𝐾!𝑁"#!, where &#

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Consider the Solow growth model. Suppose that 𝐹(𝐾,𝑁) =
𝑧𝐾!𝑁"#!, where 𝛼 = 0.3. Also, assume that capital depreciation
rate is 10% (that is 𝑑 = 0.1), savings rate is 25% (that is 𝑠
= 0.25), populations growth rate is 2% (that is 𝑛 = 0.02), and 𝑧 =
2.
• First, determine capital per worker, income per capita, and
consumption per capita in the steady state.
• Second, assume that the savings rate has increased to 40% but
the total factor productivity decreases to 1. Discuss the
effect of savings and productivity on the steady state level
of consumption per worker.