Consider a hypothetical economy that has the production function Y = F(K, LE) = K 1/3 (LE)
Question:
Consider a hypothetical economy that has the production function Y = F(K, LE) = K1/3(LE)2/3, where Y is output, K is capital, and LE is the number of effective workers. Suppose the saving rate is 20%, the capital depreciates by 3%, the population grows at the rate of 1%, and the rate of labor-augmenting technological change is 1%.
a. Solve for the per-effective-worker production function.
b. At what rate (%) do the following grow in the steady state?
i. Total output
ii. Output per worker
iii. Output per effective worker
iv. Real rental price
v. Real wage
c. Find the steady-state level of capital per effective worker, output per effective worker, and consumption per effective worker.
Macroeconomics
ISBN: 978-1464168505
5th Canadian Edition
Authors: N. Gregory Mankiw, William M. Scarth