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Economics 302 Name _____________________________ 4 Week Summer Session 2006 Answers to Quiz 3 Student ID Number __________________ 6/13/06 The following quiz is worth a total of 12.5 points. In addition, 0 to 2.5 points will be subtracted from your final score if your work is illegible and hard to follow (1 points for marginally illegible work, 2 points for illegible work, and 2.5 points for unbearably difficult-to-read work). 1. You are given the following information about an economy. Y = C + I Y = F(K, L) The aggregate production function for this economy exhibits constant returns to scale and the marginal products of labor and capital are both subject to diminishing returns. s = saving rate (assume this is constant) per year δ= depreciation rate (assume this is a constant) per year y = Y/L k = K/L k* = steady state of capital per worker (K/L) You are also told that sf(k) < δk. a. (1 point) What is sf(k)? sf(k) is the total amount of investment per unit of labor. This level of investment depends on the saving rate and the

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