Solow Model Excel Assignment goals of the Assignment
There are two main goals for this assignment. First, it is meant to help improve your understanding of the mechanics of the Solow growth model that we covered in the first half of the class and to make sure you don’t forget about it before the final. Second,since many jobs for economics majors require at least a basic knowledge of Microsoft Excel, it is also meant to give you some practice with some of Excel’s basic features. If you do not have access to Excel, Google sheets will also work as a free alternative.
The AssignmentFor this assignment, we will be simulating a Solow Growth Model in an Excelspreadsheet. To do this, please try follow these steps.
1. Set up the parameters of the model: In a box on your excel sheet, set input thefollowing numbers as values for each parameter. We will use numbers on yourstudent ID to give each of you a unique setup (if any number is a 0, skip it andmove to the next number). We will assume a Cobb-Douglas production functiona) Set capital’s share of income where X is the first number on yourstudent IDb) Set the saving rate where X is the second number of your student IDc) Set the depreciation rate where X is the third number of your studentIDd) Set the population growth rate where X is the fourth number of yourstudent IDe)
Set the technology growth rate where X is the fifth number of yourstudent ID. Calculate using your values for and .2. Calculate steady state capital per effective worker, output per effective worker, andconsumption per effective worker by hand.
3. Set the initial level of technology and . Set equal to half itssteady state value that you calculated in
2. Put these three values in the first row ofthree separate columns in your spreadsheet.4. Using Excel formulas (i.e. not calculating by hand), calculate , , , , ,, and putting each in the first row of their own column in your spreadsheet(you should now have 11 columns filled in total).
You should be able to calculate allof these variables using , , , and parameters.5. Using the growth rates you set in part 1, use an Excel formula to calculate andfor 100 periods (so you should have 100 rows filled in with these values)6. Using the law of motion for capital per effective worker, calculate for 100 periods7. Calculate values for the other 8 variables for 100 periods (carrying formulas down).8. From the 100 values you have generated, create graphs ofa) Capital per effective worker (include a dashed line at the steady state level ofcapital that you calculated in 2)b) The natural log of capital per workerc) The natural log of aggregate capitald) The growth rate of capital per worker and aggregate capital (you can use thedifference in the logs as an approximation for the growth rate)
9. Copy the spreadsheet you have created into a new sheet. After period 100, changethe saving rate to the value that optimizes steady state consumption (if you arealready at this value, choose an arbitrary new value between 0 and 1). Using thenew saving rate, starting in period 100, calculate values for all of your variables for100 more periods (so you will now have 200 total values for each variable). Create agraph for the following variables (for these graphs, start from period 50, so you willplot t=50 to t=200). For each graph, include a dashed line at both the original andnew steady state values (calculate these by hand)a) Capital per effective workerb) Output per effective workerc) Consumption per effective worker10. Copy the original spreadsheet again onto a third sheet. Now double .
Using thenew growth rate, starting in period 100 calculate values for all of your variablesforward to period 200. Create graphs (again starting in period 50) fora) Output per effective worker (include dashed lines at both the original and newsteady states))b) The natural log of output per workerc) The natural log of aggregate outputd) The growth rate of output per worker and aggregate output (again using thedifference in logs)11. You should now have 13 graphs. Put these together into a single document (Word,google docs, powerpoint slides, anything works as long as the final format can be apdf), including a brief description (a few sentences) explaining what is happening ineach of the three parts (i.e. a few sentences each for step 8, step 9, and step 10).Requirements/Tips/Grading1. Your graphs should include labeled axes and a title. If you have multiple lines on thegraph (for graphs where you plot a steady state), include a legend making it clearwhat each line represents
2. You must make at least some changes to the default Excel (or whatever programyou use) style (e.g. change the color, font, sizes of the lines, gridlines, etc.). This isjust to practice making Excel graphs. Don’t go overboard with the changes – makesure everything still looks clean.3. Make sure your final document with graphs and descriptions looks professional andreadable. If it is hard for the grader to figure out what you are trying to show youwon’t get as high a score
Requirements: finish perfectly
