Question 3

Consider two countries: St. Lucia and Barbados, labelled as L and B). In both countries the production function is Cobb--Douglas: Y = AK^1/3L ^2/3 The population growth rate is 0.1, physical capital depreciates at the rate of 0.1, and A=1. In Guyana the savings rate is sL=0.2 and in Barbados it is sB=0.4.

a. Write the production function in terms of output per capita (Y/N). (2 marks)

b. Find the steady-state values of the capital-labor ratio (K/N) in both countries. (6 marks)

c. Find the steady-state values of the output per capita (Y/N) in both countries. (4 marks)

d. In which of the countries is consumption-per-capita higher in the steadystate? (4 marks)