Home Assignment #1: Due to September 27, 2013. Show all your calculations and explain all your answers     1. Consider 2 countries, Avataria and...

Home Assignment #1: Due to September 27, 2013.

Show all your calculations and explain all your answers

1. Consider 2 countries, Avataria and Twilightia, which can be described by the Solow model. Avataria has a capital-labor ratio that is initially twice as big as that of Twilightia, but neither country is yet in a steady state. Both countries have the same production function,

Y(K,L) = 4(K)1/2(L)1/2.
Avataria has a 10% investment rate and 8% depreciation rate, while Twilightia has a 15%

investment rate and 12% depreciation rate.

(a) Calculate the steady-state capital-labor ratio for each country. Does the initial capital-labor ratio affect your results?

(b) Calculate output per worker and consumption per worker for each country. Which country has the highest output per worker? The highest consumption per worker?