(Solved): Consider a numerical example using the Solow growth model. Suppose that F(K,N)=K0.4N0.6, with d=0. ...

Consider a numerical example using the Solow growth model. Suppose that $$F(K,N)=K^{0.4}{N}^{0.6}$$, with $$d=0.2,s=0.2,n=0.01$$, and $$z=1$$, and take a period to be a year. a. Determine capital per worker, income per capita, and consumption per capita in the steady state. The steady-state capital per worker is (Round to two decimal places as needed.) The steady-state income per capita is . (Round to two decimal places as needed.) The steady-state consumption per capita is _ . (Round to two decimal places as needed.) b. Now, suppose that the economy is initially in the steady state that you calculated in part (a). Then, s increases to $$0.4$$. (i) Determine capital per worker, income per capita, and consumption per capita in the new steady state. The new steady-state capital per worker is . (Round to two decimal places as needed.) The new steady-state income per capita is . (Round to two decimal places as needed.) The new steady-state consumption per capita is (Round to two decimal places as needed.) (ii) Review how capital per worker, income per capita, and consumption per capita change in each of the ten years following the increase in the savings rate and discuss the results; in particular, comment on the speed of adjustment to the new steady state after the change in the savings rate and the paths followed by capital per worker, income per capita, and consumption per capita. After 10 periods, capital per worker is about of the new steady state level, income per capita is about of the new steady state level, and consumption per capita is about steady state level. Comparing period 2 to the initial stead state, capital per worker initially relative to the initial steady state, income per capita initially relative to the initial steady state, and consumption per capita initially relative to the initial steady state.