1. Assumptions of the Solow model Aa Aa You are interning at a video game compan

Question

1. Assumptions of the Solow model Aa Aa You are interning at a video game company and some of the game designers, knowing that you've taken this class, have asked you to help them create the economic features of a new simulation game they are developing. If the designers want the economy in the game to be like the Solow growth model (without population growth), which of the following features should they incorporate in the game? Check all that apply. Players consume (1 - s)y per worker, where s is the saving rate and y is output per worker. output per worker will be less when there are 20 units of capital and 10 units of labor than when there are 40 units of capital and 20 units of labor. Players will need to specify all of the following information in order for the game to calculate the level of income per worker: the production function, the saving rate, and the amount of capital per worker. The game designers come back to you the next day, this time, to settle a disagreement about the definition of steady state (again, without population growth). Indicate who has identified a defining condition for the steady state. Check all that apply Frances: "An economy is in a steady state whenever investment per worker equals depreciation per worker." Patrick: "An economy is in a steady state whenever there is no growth in capital per worker."

Explanation / Answer

(1) Following features should be incorporated:

- Players consume (1 - s)y per worker

- Players will need to specify production function, savings rate and capital per worker

(2) Condition of steady state are correct for both:

- Frances is correct

- Patrick is correct

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