Consider two countries with the following aggregate production functions: Y, = 5K,3(AL), Y, = K,³(AL), where Y,K,,(AL), grows through investment but also decays due to wear and tear at a constant rate d per period. Assume that A is growing at the exogenous rate g; L is growing at the exogenous rate n and households save a constant proportion s of their income. is output, capital and effective labour in the respective country i, i=1, 2. Capital a. For each country find the steady state level of the capital per effective worker (k*), output per effective worker (y*) and consumption per effective worker (c*) - in terms of the parameters of the model. b. Redo part (a) above if the following values pertain in the two countries: Country A Country B depreciation rate 7% 2.25% population growth rate 2.5% 3.25% rate of technological progress 3% 0.5% saving rate 25% 24% c. Use your answer in part (b) above to determine which of the two countries is poorer. How much poorer is the poor country?

Consider two countries with the following aggregate production functions: Y, = 5K,3(AL), Y, = K,³(AL), where Y,K,,(AL), grows through investment but also decays due to wear and tear at a constant rate d per period. Assume that A is growing at the exogenous rate g; L is growing at the exogenous rate n and households save a constant proportion s of their income. is output, capital and effective labour in the respective country i, i=1, 2. Capital a. For each country find the steady state level of the capital per effective worker (k), output per effective worker (y) and consumption per effective worker (c*) - in terms of the parameters of the model. b. Redo part (a) above if the following values pertain in the two countries: Country A Country B depreciation rate 7% 2.25% population growth rate 2.5% 3.25% rate of technological progress 3% 0.5% saving rate 25% 24% c. Use your answer in part (b) above to determine which of the two countries is poorer. How much poorer is the poor country?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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