Consider an economy in which production is characterized by the neoclassical production function: Y = K0.5N0.5 Suppose that it has a saving rate (s) of 0.1, a population growth rate (n) of 0.02, and an average depreciation rate (d) of 0.03. a) Write this production function in per capita form, and find the steady-state values of per capita capital k and per capita output y. b) At the steady-state value of k, is there more or less capital than at the golden-rule level? c) Determine what saving rate would yield the golden-rule level of capital in this model.

Consider an economy in which production is characterized by the neoclassical production function: Y = K0.5N0.5 Suppose that it has a saving rate (s) of 0.1, a population growth rate (n) of 0.02, and an average depreciation rate (d) of 0.03. a) Write this production function in per capita form, and find the steady-state values of per capita capital k and per capita output y. b) At the steady-state value of k, is there more or less capital than at the golden-rule level? c) Determine what saving rate would yield the golden-rule level of capital in this model.

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter9: Aggregate Expenditures

Section: Chapter Questions

Problem 12E

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