Problem Set 3.docx - INTERMEDIATE MACROECONOMICS Summer...

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INTERMEDIATE MACROECONOMICS Summer 2018 Yonsei University Professor: Antonio Navas Problem Set 3 (for practice only) 1. Consider an economy described by the production function: Y = K 0.3 L 0.7 . a. Derive an expression for the level of output per worker b. Assuming no population growth or technological progress, find the steady-state capital stock per worker, output per worker, and consumption per worker as a function of the saving rate and the depreciation rate. c. Assume that the depreciation rate is 10 percent per year. Make a table showing steady- state capital per worker, output per worker, and consumption per worker for saving rates of 0 percent, 10 percent, 20 percent, 30 percent, and so on. What saving rate maximizes output per worker? What saving rate maximizes consumption per worker? d. Use calculus to find the marginal product of capital. Add to your table in part (c) the marginal product of capital net of depreciation for each of the saving rate. What does your table show?
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