# Hw4 - level of consumption in steady state which of these...

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Student Name:_____________________________________________________ Sonoma State University ECONOMICS 304 Department of Economics Florence Bouvet Assignment 4 –Chapter 7 Due in class on October 8 th , before the lecture starts Make sure you explain clearly your answers. SHOW YOUR WORK! 1) Country A and country B both have the production function: Y = F(K,L) = K 1/3 L 2/3. Assume for both countries that there is no technological progress, no population growth, and that 10 percent of capital depreciates each year in both countries. Assume further that country A saves 20 percent of output each year and country B saves 30 percent of output each year. a) Compute the “per-worker” form of the production function above. b) Using this and the steady-state condition, compute the steady-state level of capital per worker and output per worker for each country.

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c) Now compute the steady state level of consumption per worker in each country. Since the golden rule is defined as the level of capital that allows the greatest
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Unformatted text preview: level of consumption in steady state, which of these two countries has a steady state closer to the golden rule steady state? d) Check this conclusion by computing the golden rule level of capital stock, and the saving rate necessary to achieve it. (Use the golden rule condition, that the marginal product of capital will equal the depreciation rate) 2) China’s real per capita GDP has been growing significantly faster than that in the U.S. – China’s growth rate was about 10% over the last year, compared to about 3% for the U.S. a) Using the Solow growth model (with no technological progress), is there reason to believe this disparity in growth rates will disappear in time? What about the disparity in income levels per person? b) How is your conclusion affected if you were told that China has a higher saving rate than the U.S.? c) What if the saving rates are the same, but China has a higher population growth rate?...
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