A closed economy has the following Cobb- Y=K1/312/3 Douglas production function: where y denotes output, K denotes capit
Posted: Thu May 05, 2022 6:39 am
A closed economy has the following Cobb-
Y=K1/312/3
Douglas production function:
where
y
denotes output, K denotes capital, and L denotes labor.
Capital is measured in machines and labor is measured in workers.There is neither population
growth,nor technological progress.The annual depreciation rate is 1.2%. The saving rate is 30%. There are 27 machines perworker at the beginning of the year.
(d) Now assume that the economy is already in its steadystate.
(i) By how many_ percentage points should the
government change the saving rate so that the
economy may converge to the golden rule steady state (use a "+" for an increase and a "-" for a decrease)?
(ii) How would the current generation feel about such a change? (in) How much would be consumption per worker in the golden rule steady state?
Y=K1/312/3
Douglas production function:
where
y
denotes output, K denotes capital, and L denotes labor.
Capital is measured in machines and labor is measured in workers.There is neither population
growth,nor technological progress.The annual depreciation rate is 1.2%. The saving rate is 30%. There are 27 machines perworker at the beginning of the year.
(d) Now assume that the economy is already in its steadystate.
(i) By how many_ percentage points should the
government change the saving rate so that the
economy may converge to the golden rule steady state (use a "+" for an increase and a "-" for a decrease)?
(ii) How would the current generation feel about such a change? (in) How much would be consumption per worker in the golden rule steady state?