Say that we are in 2020 and he

Say that we are in 2020 and here are the levels of our factors of production in 2020: K0=12 ; L0 = 40 while the initial TFP level is 11 and alpha = 0.33 (capital share in production function) Saving rate in this economy is 25 percent and depreciation rate is 6 percent.

a) Assuming no labor force growth and no TFP growth calculate the GDP and GDP per worker levels for years from 2020 to 2080.

b) Plot time-series of GDP and GDP per worker you calculated in part a.

c) Now let’s assume that labor force is not constant but grows at 1 percent. Calculate the GDP and GDP per worker levels for years from 2020 to 2080, and plot these series.

d) Comparing the results in parts a and c, comment on the results of labor force (population) growth.

e) Now let’s assume away the population growth but assume a positive TFP growth of 0.7 percent (i.e 0,007). Calculate the GDP and GDP per worker levels for years from 2020 to 2080, and plot these series.

f) Comparing the results in parts a and e, comment on the results of TFP growth.

g) Compare your findings from parts c and e, paying special attention to GDP and GDP per worker separately. Which outcome do you think is better; the one in part c or the one in part e? As a politician would you prefer the case in part c or in part e? Which one do you think is easier, or less costly, for a country to achieve?

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