Candidate Answers Homework 3 - Candidate Answers ECON 402...

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Candidate Answers ECON 402 Homework #3 Winter 2016 1. Country A and country B both have the production function 𝑌 = 𝐹(?, ?) = 5? 0.35 ? 0.65 . a. What is the per-worker production function, 𝑦 = 𝑓(𝑘) ? 𝑦 = 𝑓(𝑘) = 𝐹(?, ?) ? = 5? 0.35 ? −0.35 = 5𝑘 0.35 b. Assume that neither country experiences technological progress, population growth in each country is 1.1% per year, and that 3.2% of capital depreciates each year. Assume further that country A saves 4.2% of output each year and country B saves 6.5% of output each year. Using your answer from part (a) and the steady-state condition that investment equals depreciation, find the steady-state level of capital per worker for each country. Then find the steady-state levels of income per worker and consumption per worker. The steady state capital-labor ratio is the k that solves:   k n k sf For Country A this is: k = 11.471, y = 11.745, c = 11.251 For Country B this is: k = 22.460, y = 14.858, c = 13.892
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c. Suppose that both countries start off with a capital stock per worker of 0.25.
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