Consider an economy described by the Solow model with the following production function: Y = F(K, L) = K“ (L)!-« L grows at the rate n, the depreciation rate is d, and the country saves a constant fraction s of its income. The change in capital per-worker is given by Ak = sy – (n + 8)k. (a) Derive the per-worker production function. (b) Assuming population growth equals n and the depreciation rate equals 8, find the steady state level of capital per worker. It will depend on a, s, n and 8. Imagine the economy begins at the steady state you found in part b. Then there is a war that destroys a substantial amount of the economy's capital. The war does not affect the size of the labor force, population growth, the depreciation rate, or the saving rate. c) What is the immediate effect of the war on output per worker? Explain.

Consider an economy described by the Solow model with the following production function: Y = F(K, L) = K“ (L)!-« L grows at the rate n, the depreciation rate is d, and the country saves a constant fraction s of its income. The change in capital per-worker is given by Ak = sy – (n + 8)k. (a) Derive the per-worker production function. (b) Assuming population growth equals n and the depreciation rate equals 8, find the steady state level of capital per worker. It will depend on a, s, n and 8. Imagine the economy begins at the steady state you found in part b. Then there is a war that destroys a substantial amount of the economy's capital. The war does not affect the size of the labor force, population growth, the depreciation rate, or the saving rate. c) What is the immediate effect of the war on output per worker? Explain.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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