A country has the per-worker production function yt = 6
,where yt is output per worker and kt is the capital-labor ratio. The depreciation rate is 0.1 and the population growth rate is 0.1. The saving function is St = 0.1Yt,where St is total national saving and Yt is total output.(a)What is the steady-state value of capital-labor ratio?(b)What is the steady-state value of output per worker?(c)What is the steady-state value of consumption per worker?
What will be an ideal response?
| (a) | sf(k) = (n + d)k, so 0.1 × 6 = 0.2 k0.5; or k0.5 = 3, so k = 9. |
| (b) | y = 6 × k0.5 = 6 × 3 = 18. |
| (c) | c = (1 - s)y = 0.9y = 0.9 × 18 = 16.2. |
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What will be an ideal response?
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