Q7 An economy has a Cobb–Douglas production function: Y = Kα(LE)1−α The economy has a capital share of 1/3, a saving rate of 24 percent, a depreciation rate of 3 percent, a rate of population growth of 2 percent, and a rate of labor-augmenting technological change of 1 percent. It is in a steady state. a. At what rates do total output, output per worker, and output per effective worker grow? b. Solve for capital per effective worker, output per effective worker, and the marginal product of capital. c. Does the economy have more or less capital than at the Golden Rule steady state? How do you know? To reach the Golden Rule steady state, does the saving rate need to increase or decrease?

Q7 An economy has a Cobb–Douglas production function: Y = Kα(LE)1−α The economy has a capital share of 1/3, a saving rate of 24 percent, a depreciation rate of 3 percent, a rate of population growth of 2 percent, and a rate of labor-augmenting technological change of 1 percent. It is in a steady state. a. At what rates do total output, output per worker, and output per effective worker grow? b. Solve for capital per effective worker, output per effective worker, and the marginal product of capital. c. Does the economy have more or less capital than at the Golden Rule steady state? How do you know? To reach the Golden Rule steady state, does the saving rate need to increase or decrease?

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter16: Economic Growth

Section: Chapter Questions

Problem 10E

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