420worksheet12ans

# 420worksheet12ans - MPK*K = Y α MPK = /(K/Y) = 0.30 /2.5 =...

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ECON 420 – 002 and 004 Worksheet 12 1. In the United States, the capital share of GDP is about 30%; the average growth in  output is about 3% per year; the depreciation rate is about 4 percent per year, and the  capital-output ratio is 2.5. Suppose that the production function is Cobb-Douglas, so that  the capital share in output is constant, and that the United States has been in a steady  state. a. What must the saving rate be in the initial steady state?  (Hint: Use the steady-state relationship, sy=( +n+g)k) δ sy=( +n+g)k δ s = ( +n+g)k/y δ s=(0.04+0.03)*(2.5) = 0.175 Note: k/y ratio and K/Y ratio will be 2.5 b. What is MPK in the initial steady state?
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Unformatted text preview: MPK*K = Y α MPK = /(K/Y) = 0.30 /2.5 = 0.12 α c. Suppose that public policy raises the saving rate so that the economy reaches the Golden Rule level of capital. What will MPK be at the Golden Rule steady state? Compare the MPK in (b) to this. Explain. MPK = ( +n+g) = (0.03+0.04) = 0.07 δ d. What will be the capital-output ratio be at the Golden Rule steady state? MPK*K = Y for a Cobb-Douglas production funciton. α K/Y = /MPK = 0.30/ α 0.07= 4.3 e. What must the saving rate be to reach the Golden Rule steady state? Use sy=( +n+g)k δ s = ( +n+g)k/y δ s=(0.04+0.03)*(4.3) = 0.30...
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## This note was uploaded on 11/17/2008 for the course ECON 420 taught by Professor Hill during the Spring '08 term at UNC.

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