EBK ECONOMICS: PRINCIPLES AND POLICY
13th Edition
ISBN: 9780100605930
Author: Blinder
Publisher: YUZU
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Chapter 24, Problem 3DQ
To determine
The steps taken toslow down capital formation.
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=
5√K and has a capital
Country A produces GDP according to the following equation: GDP
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In Ghana, the capital share of GDP is about 40 percent, the average growth in output is about 2 percent per year, the depreciation rate is about 3 percent per year, and the capital–output ratio is about 1.5.
Suppose that the production function is Cobb–Douglas and that Ghana has been in a steady state.a. What must the saving rate be in the initial steady state? [Hint: Use the steady-state relationship, sy = (δ + n + g)k.]b. What is the marginal product of capital in the initial steady state?c. Suppose that public policy alters the saving rate so that the economy reaches the Golden Rule level of capital. What will the marginal product of capital be at the Golden Rule steady state? Compare the marginal product at the Golden Rule steady state to the marginal productin the initial steady state. Explain.d. What will the capital–output ratio be at the Golden Rule steady state? (Hint: For the Cobb–Douglas production function, the capital–output ratio is related to the marginal product of…
Chapter 24 Solutions
EBK ECONOMICS: PRINCIPLES AND POLICY
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- In Ghana, the capital share of GDP is about 40 percent, the average growth in output is about 2 percent per year, the depreciation rate is about 3 percent per year, and the capital–output ratio is about 1.5. Suppose that the production function is Cobb–Douglas and that Ghana has been in a steady state.a. What must the saving rate be in the initial steady state? [Hint: Use the steady-state relationship, sy = (δ + n + g)k.]b. What is the marginal product of capital in the initial steady state?c. Suppose that public policy alters the saving rate so that the economy reaches the Golden Rule level of capital. What will the marginal product of capital be at the Golden Rule steady state? Compare the marginal product at the Golden Rule steady state to the marginal productin the initial steady state. Explain.d. What will the capital–output ratio be at the Golden Rule steady state? (Hint: For the Cobb–Douglas production function, the capital–output ratio is related to the marginal product of…arrow_forwardLucas paradox indicates that Labor productivity should increase in poor countries in low rates. The law of diminishing marginal productivity of labor indicates that an extra $1 of capital per worker will increase labor productivity more in a poor country where capital stock per worker is low. This implies that capital should flow from rich countries to the poor. The observation that capital doesn't flow from the rich to the poor countries hence contradicting the above theory is called the Lucas paradox. poor countries have the lowest level of inflation. poor countries grow fast but remain poor.arrow_forwardEconomics Assume that the sum of population growth and the depreciation rate is equal to the saving rate. Are there steady states? If yes, what are the steady states capital per person? Please be simple with the termsarrow_forward
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