Question
In: Economics
Suppose Canada’s aggregate production function is given by the following: Y = (K*1^3)(N*2^3) Variables are defined...
Suppose Canada’s aggregate production function is given by the
following:
Y = (K*1^3)(N*2^3)
Variables are defined as they were in class. Suppose the savings
rate in Canada is 33.33% (s = 1 3) and the depreciation rate is 15%
(δ = 0.15). Assume that Canada is not currently experiencing any
technological change.
a) Calculate the steady-state level of capital per worker
and output per worker in Canada’s economy.
b) Determine the annual growth rate of output per worker in Canada.
The government wants to grow the economy by encouraging more
savings. Suppose they successfully persuade Canadians to increase
the savings rate to 40% (s = 0.4).
c) Graph the resulting annual growth rate of GDP per
worker for the following 100 years. What is the new steady state
level of GDP per capita? Has increased savings led to a large
growth in the economy?
d) Calculate the golden-rule savings rate for this economy.
e) Explain what your result from part d) say about the desirability of Canada’s increased savings policy.
Solutions
Rahul Sunny answered 2 years agoRelated Solutions
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Suppose that output (Y ) in an economy is given by the following aggregate production function:...
Suppose that output (Y ) in an economy is given by the following
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Furthermore, assume that capital depreciates at rate δ and that
savings is a constant proportion s of income. You may assume that δ
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2. Suppose a production function is given by F ( K ,
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of labor “w” is $16.
a. (5) What combination of labor and capital minimizes the cost of
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Suppose that the production function is given by Y=K^(1/2)L^(1/2) a. Derive the steady state levels of...
Suppose that the production function is given by
Y=K^(1/2)L^(1/2)
a. Derive the steady state levels of capital per worker and output
per worker in terms of the saving rate, s, and the depreciation
rate, δ.
b. Suppose δ = 0.05 and s = 0.2. Find out the steady state output
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Suppose a production function is given by F ( K , L )
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of labor “w” is $16.
a. (5) What combination of labor and capital minimizes the cost of
producing 100 units of output in the long run?
b. (5) When r falls to $1, what is the minimum cost of producing
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1. The following table shows the data for Canada’s aggregate production function with constant return to...
1. The following table shows the data for Canada’s
aggregate production function with constant return to scale and the
output elasticity with respect to capital equal to
0.3.
Year
GDP (billions of 2002 dollars)
Capital Stock (billions of 2002 dollars)
Employment
(millions)
1961
264.5
525.6
6.06
1971
437.7
824.7
8.08
1981
647.3
1277.4
11.31
1991
808.1
1715.1
12.86
2001
1120.1
2071.1
14.94
2010
1325
2668.7
17.04
a). Find the values of total factor productivity for the
given years above.
I...
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1. Suppose that an economy’s production function is given by
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factors are paid their marginal products.
a. Show that the real wage is proportional to average labor
productivity.
b. Show that the production function satisfies the Euler’s
theorem.
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