Home » Suppose that the economy’s production function is Y=K 0.25 (AN) 0.75 and that the saving rate (s) is equal to 10% and that the rate of depreciation…

# Suppose that the economy’s production function is Y=K 0.25 (AN) 0.75 and that the saving rate (s) is equal to 10% and that the rate of depreciation…

Suppose that the economy’s production function is

Y=K 0.25(AN) 0.75

and that the saving rate (s) is equal to 10% and that the rate of depreciation () is equal to 5%. Further, suppose that the number of workers grows at 1% per year and that the rate of technological progress is 3% per year.

a. Find the steady-state values of:

 capital stock per effective worker.

 output per effective worker.

 consumption per effective worker

 the growth rate of output per effective worker.

 the growth rate of output per worker.

 the growth rate of output.

 the growth rate of consumption

b. Suppose that the rate of technological progress doubles to 6% per year. Recompute the answers to part (a). Explain.

c. Now suppose that the rate of technological progress is still equal to 3% per year, but the number of workers now grows at 0% per year. Recalculate the answers to (a).

d. Can you tell whether people are better off in a. or in b.? in a. or in c.? Explain.

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