Handout 7 Key

# Handout 7 Key - Econ 3140 Fall 2009 Handout#7 with answers...

This preview shows pages 1–2. Sign up to view the full content.

Econ 3140 Fall 2009 Handout #7 with answers 1. (a) First, we transform the production function into per worker term Y t N t = AK 1 = 2 t N 1 = 2 t N t , y t = f ( k t ) = k 1 = 2 Second, we use the steady state condition s f ( k t ) = ( n + d ) k t () 1 4 k 1 = 2 t = 1 10 k t () k 1 = 2 t = 10 4 () k t = 100 16 = 6 : 25 Plugging k t = 6 : 25 into the prod. fn y t = f ( k t ) = 100 16 ± 1 = 2 = 10 4 () y t = 10 4 = 2 : 5 (b) To calculate the steady state value of per capita consumption we might use either c t = (1 ± s ) y t or c t = f ( k t ) ± ( n + d ) k t . c t = 3 4 10 4 ± = 30 16 = 1 : 875 (c) Since the production function is CRS ( + ± = 1) and assuming productivity ( A ) remains constant, the steady state growth rate will equal ( n + d ) = 10% . (Also, since f 0 ( k t ) = ( n + d ) ). (d) Recalling the Golden Rule condition (maximize welfare): @c t @k t = 0 and using the consumption function c t = f ( k t ) ± ( n + d ) k t : @c t @k t = f 0 ( k t ) ± ( n

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 2

Handout 7 Key - Econ 3140 Fall 2009 Handout#7 with answers...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online