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In: Economics

If the current stock of capital per worker is k=50, the depreciation rate is d=0.1, and...

If the current stock of capital per worker is k=50, the depreciation rate is d=0.1, and population grows at rate n=0.02. How much investment do you need to make sure future capital per worker stays at current level?

Solutions

Expert Solution

k_t+1 = k_t - d*k_t -n*k_t - i_t

k_t+1 = (1-d-n)*k-t + i_t

i_t : investment per worker

k_t+1 = 50*(1-.1-.02)+ i_t

k_t+1 = 50*.88 + i_t

So, if k_t+1 = k_t = 50

Then investment per worker = 50- 50*.88

= .12*50

= 6

Rahul Sunny answered 2 years ago
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