Question: Given the production function Y = AK^0.3L^0.7 and fixed values for the saving rate and depreciation, if productivity is growing at an average rate of

Given the production function Y = AK^0.3L^0.7 and fixed values for the saving rate and depreciation, if productivity is growing at an average rate of three percent, and the labor input grows at two percent, there is a unique growth rate of capital that is sustainable. That is, if the growth rate of capital is either higher or lower than this steady-state value, then it must eventually change, even if nothing else in the economy changes. Calculate this steady-state growth rate of capital and explain why it alone is a sustainable rate.

Step by Step Solution

3.39 Rating (155 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock

Answer In developed countries there is lot f money Hhrat has already been invested the sauings rate ... 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!