Question
In: Economics
In the Solow model, suppose the per worker production function is y = 3 k^0.5. Suppose...
In the Solow model, suppose the per worker production function is y = 3 k^0.5. Suppose s =0.11,n =0.03,and d =0.10.
Calculate the steady-state equilibrium capital-labor ratio.
k = (Round to two decimal places.)
Solutions
Expert Solution
Given:
y = 3k0.5
n = 0.03
s = 0.11
d = 0.10
At the steady-state level, the breakeven investment is equal to the investment.
That is,
Investment is the savings rate times the income = sy
And breakeven investment = (n+d)k
where s = saving rate
y = income per labor
k = capital per labor or capital labor ratio, or k = K/L
n = population growth rate
d = depreciation rate
Steady-state level
Therefore putting values into the formula, we get the capital-labor ratio or the capital per labor.
Since,
therefore, putting y = 3k0.5
Solving,
k = 6.44
Therefore the steady state-level equilibrium capital-labor ratio is 6.44
Rahul Sunny answered 1 year agoRelated Solutions
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