Hw4ak - Sonoma State University ECONOMICS 304 Department of...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Sonoma State University ECONOMICS 304 Department of Economics Florence Bouvet Assignment 4 –Chapter 7- Answer Key 1a) Defining y = Y/L, and k = K/L, the production function can be written: y = k 1/3 . b) At steady state k*, the following condition will hold: s f(k*) = ( δ ) k* or s k* 1/3 = ( δ ) k* or k* = (s/( δ )) 3/2 steady-state capital per worker: country A: k* A = (0.2 / 0.10) 3/2 = 2.83 country B: k* B = (0.3 / 0.10) 3/2 = 5.20 c) steady-state output per worker: country A: y* A = (k* A ) 1/3 = (2.83) 1/3 =1.41 country B: y* B = (k* B ) 1/3 = (5.20) 1/3 = 1.73 steady-state consumption per worker: country A: c* A = (1–s A ) y* A = (1-0.2)(1.41)= 1.13 country B: c* B = (1–s B ) y* B = (1- 0.3)(1.73)= 1.21 So country B has a higher consumption level (although it spends a smaller fraction of its income on consumption). This means country B is closer to the golden rule. d) Golden rule: (1/3) k* gold -2/3 = 0.01 k * gold = 6.09: golden rule of capital stock
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/08/2011 for the course ECON 304 taught by Professor Eyler during the Spring '07 term at Sonoma.

Ask a homework question - tutors are online