- 2 Consider An Economy Described By The Following Cobb Douglas Constant Returns To Scale Aggregate Production Functi 1 (99.34 KiB) Viewed 71 times
2.) Consider an economy described by the following Cobb- Douglas, constant-returns-to-scale, aggregate production function: Y (K, L) = K426 i.) Derive the per-capita/worker production function. ii.) Assume the depreciation rate (d) is 2 percent, the population growth (n) is 5 percent, and the savings rate (s) is 8 percent; derive the discrete fundamental Solow Growth equation, and finally find the steady-state capital stock per-capita/worker (k*) and output (y*) per-capita/worker. iii.) Assume the savings rate (s) rises to 12 percent, all else equal, recalculate steady-state per-capita/worker stock and output per- capita/worker. Then explain the positive implications of an increase in the savings rate on the economy in the long-run.