Question: In a country, output is produced with labor and physical capital. The production function in per-worker terms is y Akl/2 The depreciation rate is


In a country, output is produced with labor and physical capital. The production function in per-worker terms is y Akl/2 The depreciation rate is A, the overall productivity parameter equals I. The investment rate (1) is determined as follows: 0.20 if y S 10 0.40 if y > 10. Draw a diagram showing the steady state(s) of this model. Calculate the values of any steady state levels of k and y. Also, indicate on the diagram and describe briefly in words how the levels of y and k behave outside of the steady state. Comment briefly on the stability of the steady state(s).
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