Consider the Solow growth model as was done in class with constant population growth rate, n>0 .

a. Using a diagram, show how to determine the steady state capital per worker.

b. Absent shocks, why does capital per worker converge to its steady state value?

c. Assume that the economy starts in a steady state. Suppose there is a horrible plague at time t, for example, Ebola, that wipes out half of the population but neither aggregate capital stock nor total factor productivity are affected. Show how capital per worker and consumption per worker adjust to the new steady-state over time.

## “Looking for a Similar Assignment? Get Expert Help at an Amazing Discount!”