Consider a closed economy in which the population grows at the rate of 1% per year. The

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Consider a closed economy in which the population grows at the rate of 1% per year. The per-worker production function is y = 6√c, where y is output per worker and k is capital per worker. The depreciation rate of capital is 14% per year.
a. Households consume 90% of income and save the remaining 10% of income. There is no government spending. What are the steady-state values of capital per worker, output per worker, consumption per worker, and investment per worker?
b. Suppose that the country wants to increase its steady-state value of output per worker. What steady-state value of the capital-labour ratio is needed to double the steady-state value of output per worker? What fraction of income would households have to save to achieve a steady-state level of output per worker that is twice as high as in part(a)?
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Macroeconomics

ISBN: 978-0321675606

6th Canadian Edition

Authors: Andrew B. Abel, Ben S. Bernanke, Dean Croushore, Ronald D. Kneebone

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