Question

Consider a version of Solow’s Model: Yt = AKαt Lt1−α sYt =Kt+1 −Kt +δKt Lt =L0(1+n)t 1

a) Rewrite the production function and the equation of capital accummulation using variables normalized by the units of labor, i.e. k = K/L; y = Y /L

Answer 1

The production function and equation of capital accumulation can be rewritten using variables normalized by the units of labor.

Step-by-step explanation:

The production function and the equation of capital accumulation can be rewritten using variables normalized by the units of labor (k = K/L and y = Y/L).

For the production function, it becomes Y/L = A(k^α)(L^(1-α))

For the equation of capital accumulation, it becomes sY = (δ+n)K