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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.
- Spring '08