Starting from the law of motion for the aggregate capital stock set up the Solow model. In each step,
provide a brief description of the equation you generated. In your set up let n is the population growth
rate, d is the depreciation rate, s is the saving I I rate, z is the TFP. Use the following Cobb-Douglas
production function: Y = zK2N2. Write down the equation that describes the equilibrium output per person.
Visit https://data.worldbank.org/
Using GDP (constant $US 2010), population growth rate, population, gross savings (% of GDP) data for
2018 (if that is not available use the most recent one) do the following calculations:
• The model generated output per person for Australia and Tunisia (Since the Solow model assumes z is
the same across countries, set z=1 for both countries. Also set d=0.1 for both countries).
•
Data generated output per person for Australia and Tunisia
Compare the model generated outcomes and the data generated outcomes and provide a critique for the
Solow model.