Consider an economy described by the aggregate production function Y=f(K,L)=KEL^(1/2) Where Y is the total output,...

Consider an economy described by the aggregate production function

Y=f(K,L)=KEL^(1/2) Where Y is the total output, K is the total capital stock, E is the efficiency of labour, and L is the total labour force.

Assume this economy has a population growth of 5%, a technological growth rate of 10%, and a depreciation rate of 20%. Use the Solow model with population growth and labour-augmenting technological progress to answer the following questions:

1. Calculate the steady-state values of capital stock per effective worker (k), output per effective worker (y) and consumption per effective worker (c)

2. Calculate the golden rule level of capital per effective worker (k*gold), the golden rule output per effective worker level (y*gold), the golden rule consumption per effective worker (c*gold), and the golden rule investment per effective work (i*gold) and use appropriate graph to show the calculated values.

Expert Solution

Rahul Sunny answered 2 years ago

Consider an economy described by the aggregate production function Y=f(K,L)=(KEL)^(1/2) Where Y is the total output,...

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