# ps4answers - Question 1 kmax is the maximum sustainable...

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Question 1 k max is the maximum sustainable capital to labor ratio in the economy. This will occur where the cost of maintaining that level of capital stock is equal to the output that level of capital produces. k max is the solution to the following equation. Ak α max = ( n + d ) k max 3 k 0 . 4 = 0 . 15 k k max = 147 . 36 The Golden Rule capital stock is the level of k that allows the maximum pos- sible consumption. This occurs where the production function is tangent to the depreciation-population growth line. The slope of the production funtion is given by 1 . 2 k - 0 . 6 , and the slope of the depreciation-population growth line is a constant 0.15. The derivative of the production function is αAk α - 1 , and the depreciation population growth line has slope n + d . So, k gr is deﬁned by the following equation: αAk α - 1 gr = ( n + d ) 1 . 2 k - 0 . 6 = 0 . 15 k gr = 32 The steady state capital labor ratio is given by the intersection of the savings curve with the depreciation population growth line. (0

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ps4answers - Question 1 kmax is the maximum sustainable...

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