Suppose that the economy's production function is: Y = (K) 0.5 (AN) 0.5, that the savings rate s is equal to 16%, and that the rate of depreciation d is equal to 10%. Suppose further that the number of workers grows at 2% per year and that the rate of technological progress is 4% per year. a) Find the steady state values of the variables listed below: i) The capital stock per effective worker. ii) Output per effective worker. iii) The growth rate of output per effective worker. iv) The growth rate of output per worker. v) The growth rate of output. b) Suppose that the rate of technological progress doubles to 8% per year. Recompute the answers in part a). Explain the differences. c) Now suppose that the rate of technological progress is still equal to 4% per year, but the number of workers now grows at 6% per year. Recompute the answer to part a). Are people better off in part a) or c)? Explain.
Suppose that the economy's production function is: Y = (K) 0.5 (AN) 0.5, that the savings rate s is equal to 16%, and that the rate of depreciation d is equal to 10%. Suppose further that the number of workers grows at 2% per year and that the rate of technological progress is 4% per year. a) Find the steady state values of the variables listed below: i) The capital stock per effective worker. ii) Output per effective worker. iii) The growth rate of output per effective worker. iv) The growth rate of output per worker. v) The growth rate of output. b) Suppose that the rate of technological progress doubles to 8% per year. Recompute the answers in part a). Explain the differences. c) Now suppose that the rate of technological progress is still equal to 4% per year, but the number of workers now grows at 6% per year. Recompute the answer to part a). Are people better off in part a) or c)? Explain.
Chapter16: Economic Growth
Section: Chapter Questions
Problem 2E
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Transcribed Image Text:Suppose that the economy's production function is: Y = (K) 0.5 (AN) 0.5, that the savings rate s is equal to 16%, and
that the rate of depreciation d is equal to 10%. Suppose further that the number of workers grows at 2% per year and
that the rate of technological progress is 4% per year. a) Find the steady state values of the variables listed below: i) The
capital stock per effective worker. ii) Output per effective worker. iii) The growth rate of output per effective worker. iv)
The growth rate of output per worker. v) The growth rate of output. b) Suppose that the rate of technological progress
doubles to 8% per year. Recompute the answers in part a). Explain the differences. c) Now suppose that the rate of
technological progress is still equal to 4% per year, but the number of workers now grows at 6% per year. Recompute the
answer to part a). Are people better off in part a) or c)? Explain.
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