Suppose TFP is fixed at A =1 and both the labor input and population size is fixed and equal to 1. Assume an economy has Cobb-Douglas technology with a = 0.5. The depreciation rate of capital is 14% per year. Households consume 90% of their income and save the remaining 10% of their income. There is no government. A) Solve for GDP per person in the steady state. B) Suppose the country wants to increase its steady- state value of GDP per person. What fraction of income would households have to save to achieve a steady state level of GDP per person that is twice as high as in Part A?

Suppose TFP is fixed at A =1 and both the labor input and population size is fixed and equal to 1. Assume an economy has Cobb-Douglas technology with a = 0.5. The depreciation rate of capital is 14% per year. Households consume 90% of their income and save the remaining 10% of their income. There is no government. A) Solve for GDP per person in the steady state. B) Suppose the country wants to increase its steady- state value of GDP per person. What fraction of income would households have to save to achieve a steady state level of GDP per person that is twice as high as in Part A?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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