420worksheet12

420worksheet12 - b. What is MPK in the initial steady...

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ECON 420 – 002 and 004 Worksheet 12 1. In the United States, the capital share of GDP is about 30%; the average growth in output is about 3% per year; the depreciation rate is about 4 percent per year, and the capital-output ratio is 2.5. Suppose that the production function is Cobb-Douglas, so that the capital share in output is constant, and that the United States has been in a steady state. a. What must the saving rate be in the initial steady state? (Hint: Use the steady-state relationship, sy=(δ+n+g)k)
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Unformatted text preview: b. What is MPK in the initial steady state? c. Suppose that public policy raises the saving rate so that the economy reaches the Golden Rule level of capital. What will MPK be at the Golden Rule steady state? Compare the MPK in (b) to this. Explain. d. What will be the capital-output ratio be at the Golden Rule steady state? e. What must the saving rate be to reach the Golden Rule steady state?...
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