3. • Consider an economy described by the production function: Y 5 F(K, L) 5 K0.4L0.6....

3. • Consider an economy described by
the production function: Y 5 F(K, L) 5 K0.4L0.6.
a. What is the per-worker production function?
b. Assuming no population growth or technological
progress, find the steady-state capital
stock per worker, output per worker, and
consumption per worker as a function of the
saving rate and the depreciation rate.
c. Assume that the depreciation rate is 15 percent
per year. Make a table showing steadystate
capital per worker, output per worker,
and consumption per worker for saving rates
of 0 percent, 10 percent, 20 percent, 30 percent,
and so on. (You might find it easiest to
use a computer spreadsheet.) What saving rate
maximizes output per worker? What saving
rate maximizes consumption per worker?

Expert Solution

Rahul Sunny answered 2 years ago

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