1. (33 points) Suppose that an economy has the following production function: Y = F(K, LE) = K12(LE)/2 Assume that the r

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1 33 Points Suppose That An Economy Has The Following Production Function Y F K Le K12 Le 2 Assume That The R 1 (64.63 KiB) Viewed 96 times

1. (33 points) Suppose that an economy has the following production function: Y = F(K, LE) = K12(LE)/2 Assume that the rate of depreciation is 6 percent per year (8 = .06), the rate of population growth is 2 percent per year (n = .02), the rate of labor efficiency growth is 2 percent per year (g=.02) and the saving rate is 60 percent (s = 0.6). 1) Calculate the per effective worker production function, the steady-state levels of capital per effective worker (k*), output per effective worker (y*), consumption per effective worker (c*), and investment per effective worker (i*).(15 points) 2) Graphically illustrate the steady state. Clearly label the curves, and the steady state values of k* y*, c* and i*. If MPK 0.08, is the economy below, above, or right at the Golden Rule steady state? (18 points)