1. Derive the equilibrium capital accumulation equation. Under what conditions will this model exhibit a...
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Finance
1. Derive the equilibrium capital accumulation equation. Under what conditions will this model exhibit a steady state? What happens if these conditions are not satisfied?
2. Assume the conditions required for the model to exhibit a (unique) steady state are satisfied. Illustrate this steady state using an appropriate diagram. Use this diagram to analyse and explain the effects of an increase in the marginal product of labour.
Consider an economy that can be described by the following equations: (2) Y = AK + BLt, A>0, B >0, (1) St = sy 00. (5) where Y, denotes output (in period t), K, denotes capital, L denotes labour, S, denotes saving, Ct denotes consumption, 14 denotes investment, and A, B, s, 8, n each represent parameters. Consider an economy that can be described by the following equations: (2) Y = AK + BLt, A>0, B >0, (1) St = sy 00. (5) where Y, denotes output (in period t), K, denotes capital, L denotes labour, S, denotes saving, Ct denotes consumption, 14 denotes investment, and A, B, s, 8, n each represent parameters
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