Question: Consider a hypothetical economy that has the production function Y = F(K, LE) = K 1/3 (LE) 2/3 , where Y is output, K is

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.

Step by Step Solution

3.52 Rating (155 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock

a Pereffectiveworker production function YLE KLE13 b i Total output 4 ii Output per worker 3 iii Out... View full answer

blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!