Consider an economy with a production function given by Y =K1/4 (EL)3/4 . The depreciation rate...

Consider an economy with a production function given by Y =K^1/4 (EL)^3/4 . The depreciation rate is = 0.1, the population growth rate is n = 0.02 and the technological growth rate is g = 0.03. The economy's current savings rate is s = 0.3 and the current level of capital per effective worker K₀ = 1. Answer the following questions.

What is the consumption per effective worker in the current year (C₀) ?
What is the capital per effective worker in the next period (k₁) ?
What is the steady state level of output per effective worker (y*) ?
Find the golden rule level of output per-effective worker (y_G) ?
Compare the economy's savings rate with the golden-rule savings rate. Is the economy saving less ?

Solutions

Expert Solution

Rahul Sunny answered 8 months ago

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