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Sonoma State University
Department
of Economics
ECONOMICS
304
Florence
Bouvet
Assignment
3 Chapters
78
Due in class on October
14th
the beginning of class
Please tum in your answers on a separate page.
1) Country A and country B both have the production function: Y = F(K,L) = K
1I3
L
2I3
.
Assume for both countries that populations are growing at the rate of 3 percent each
year, that there is no technological progress, and that 7 percent of capital depreciates
each year. 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 "perworker" form of the production function above.
b)
Using this and the steadystate condition that considers population growth,
compute the steadystate level of capital per worker for each country.
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
level of consumption in steady state, which of these two countries has a steady
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This note was uploaded on 04/07/2011 for the course ECON 304 taught by Professor Eyler during the Fall '07 term at Sonoma.
 Fall '07
 Eyler
 Economics

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