Consider a country with production function , where y =5k 1/2 , where y is the output
Question:
Consider a country with production function , where y =5k1/2, where y is the output per worker and k is capital per worker. Suppose the investment in capital occurs at a rate of35% of income per worker every period, depreciation rate is 1.5%and population growth rate is 2%. Use excel to plot the production function, investment line and capital depletion line with k on the x-axis(use the attached spread sheet to draw your graphs).-attached spread sheet shown below*****
a. What is the steady state level of y and k.
b. Suppose TFP increases by 20%. What happens to the SteadyState y and k?
c. Suppose the investment rate increases to 40%. What happens tothe steady state y and k?
Macroeconomics
ISBN: 978-0321675606
6th Canadian Edition
Authors: Andrew B. Abel, Ben S. Bernanke, Dean Croushore, Ronald D. Kneebone