1. (a) If the rate of growth of output in an economy is 7% and the rate of growth of capital and labour are 3% and 4% respectively for an economy with a production function Y = AK0.6 L04, calculate the rate of growth of total factor productivity. (b) If the per capita production function is y= k0.4 , the savings rate is 0.5 and rate of depreciation is 0.1, what are the values of the capital and output per capita at steady state? If the economy intends to maximise its consumption per capita at steady state what should the level of savings be? With the help of a transition diagram trace the trajectory of the economy from the current state to the one where it maximises its consumption per capita at steady state.

1. (a) If the rate of growth of output in an economy is 7% and the rate of growth of capital and labour are 3% and 4% respectively for an economy with a production function Y = AK0.6 L04, calculate the rate of growth of total factor productivity. (b) If the per capita production function is y= k0.4 , the savings rate is 0.5 and rate of depreciation is 0.1, what are the values of the capital and output per capita at steady state? If the economy intends to maximise its consumption per capita at steady state what should the level of savings be? With the help of a transition diagram trace the trajectory of the economy from the current state to the one where it maximises its consumption per capita at steady state.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter17: Production And Growth

Section17.1: Economic Growth Around The World

Problem 1QQ

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Question

1. (a) If the rate of growth of output in an economy is 7% and the rate of growth of capital
and labour are 3% and 4% respectively for an economy with a production function Y =
AK0.6 L0.4 , calculate the rate of growth of total factor productivity.
(b) If the per capita production function is y= k0.4 , the savings rate is 0.5 and
rate of
depreciation is 0.1, what are the values of the capital and output per capita at steady state?
If the economy intends to maximise its consumption per capita at steady state what
should the level of savings be? With the help of a transition diagram trace the trajectory
of the economy from the current state to the one where it maximises its consumption per
capita at steady state.

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