Let the production function for an economy be Y=AK1/2L1/2 where Y is output, K is capital,...

Let the production function for an economy be Y=AK^1/2L^1/2 where Y is output, K is capital, L is labor and A is "ideas." If A=4, L=100, the savings rate is 1/5 and the depreciation rate is 1/3, find the steady-state levels of capital, output and consumption. [Answers are all whole numbers.]

K*=

Y*=

C*=

Expert Solution

This type of production function is called Cobb Douglas production function. The model given under to calculate steady state level of variables was given by Solow and Swan , known as Solow Swan Neo- classical m growth models. The steady state level of output, capital and consumption ( endogenous) variables are calculated from the following equation called as fundamental equation of Solow model .

Since it is difficult to type equations, i attached the photo shot of left over answer below. One thing need to consider that there is need of population level of country in order to calculate steady state level of capital , output, and consumption, which is missing in the equation , but i'll elaborate the question to possible extend that if you get the population data of a country you can easily calculate the respective variables easily.

Rahul Sunny answered 1 year ago

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