Understanding efficiency of labor in the Solow model Imagine a group of settlers

Question

Understanding efficiency of labor in the Solow model Imagine a group of settlers arrive on the planet Zluto in the year 2020 with 80 people in their labor force (L). Over the course of their first year, they acquire knowledge of the planet and create new tools that Increase the efficiency of labor (E) from 1.00 to 1.15. Since the average worker is, in effect, as productive as workers were at the start of the year, the number of effective workers went from 80 to. Suppose that, in 2025, the economy of Zluto has reached the steady state depicted on the graph above, in which capital per effective worker (k) is equal to. If its capital stock has increased to 1,650 units of capital and the efficiency of labor has risen to 1.65, the number of actual workers (L) must be, and the number of effective workers has risen to

Explanation / Answer

Effective Labour is given by Effective Labour Hours or Men * Efficiency Parameter

So Old Effective Labour = 80*1 = 80

New Effective Labour after course of 1 year = 80*1.15 = 92

So, Since average labour is as productive as (1/1.15) = 0.86 worker in the beginning, so no of effective workers went from 80 to 92.

In the steady state, we have Break Even Investment = Investment

So, in 2025, the steady state is achived where capital per effective labour is 10.

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