Economics

Economics
1. In a neo-classical growth model, production is governed by the production function, y = k^1/2, where y=Y/N and k=K/N are, respectively, output and capital (both expressed per capita). In the first year of analysis, the economy has an employed labor force of 100,000 and a capital stock of 1,600,000 units. The growth rate, N, of the labor force is 10%; and the savings rate, s, is 40%. Assume no depreciation and no technological progress.
a. Calculate the initial values of y and k. Verify that the economy is on a balanced growth path.
b. Suppose the savings rate rises to 50%. Calculate the values of y, k, actual investment (sy), and balanced-growth investment (nk) for the next year. (Hint: k1 = k0 + nk0 )

2. Explain what happens to capital and output in the
short run and in the long run if the technological .
growth rate decreases.