For this questions please use sheets 1a and 1b.
(a) (10 points) In sheet 1a in columns G through M, please construct spreadsheet formulas to calculate
the requested values using the Solow model. Specifically, please calculate: output per efficiency units
(yˆ = Y /AL˜ ), output per capita, capital-labor ratio, the labor share of income, real wages, the growth
rate of GDP per capita, and the real rental rate of capital.
(b) (10 points) In sheet 1a in cells E2 and E3, please calculate the long-run stable level of capital per
effective worker (ˆk = K/AL˜ ) and output per effective worker (yˆ = Y /AL˜ ). In cell H2 enter the first
year in our simulated data when the capital per effective worker is within 1% of its long-run stable
level. For the year in cell H2, how large is the gap between the growth of output per worker in the
simulated data and the growth rate that would prevail on the balanced growth path?
(c) (5 points) Download data on US real GDP based from the Penn World Tables at the link here. Enter
US real GDP (PPP), series rgdpe, into column G of sheet 1b and population, series pop, into column
H, and calculate real GDP per capita growth in column I. How does the simulated data in sheet 1a
compare to this data? Try adjusting any model parameters or initial conditions to better match the
simulated and observed data