Consider a country with production function unction ? = 5? 1/2, where y is the output per worker and k is capital per worker. Suppose the investment in capital occurs at a rate of 35% of income per worker every period, the depreciation rate is 1.5% and the population growth rate is 2%. Use excel to plot the production function, investment line and capital depletion line with k on the x-axis (use the attached spreadsheet to draw your graphs). a. What is the steady state level of y and k. b. Suppose TFP increases by 20%. What happens to the steady state y and k? c. Suppose the investment rate increases to 40%. What happens to the steady state y and k?
Consider a country with production function unction ? = 5? 1/2, where y is the output per worker and k is capital per worker. Suppose the investment in capital occurs at a rate of 35% of income per worker every period, the depreciation rate is 1.5% and the population growth rate is 2%. Use excel to plot the production function, investment line and capital depletion line with k on the x-axis (use the attached spreadsheet to draw your graphs). a. What is the steady state level of y and k. b. Suppose TFP increases by 20%. What happens to the steady state y and k? c. Suppose the investment rate increases to 40%. What happens to the steady state y and k?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Consider a country with production function unction ? = 5? 1/2, where y is the output per worker and k
is capital per worker. Suppose the investment in capital occurs at a rate of 35% of income per
worker every period, the depreciation rate is 1.5% and the population growth rate is 2%. Use excel to
plot the production function, investment line and capital depletion line with k on the x-axis (use
the attached spreadsheet to draw your graphs).
a. What is the steady state level of y and k.
b. Suppose TFP increases by 20%. What happens to the steady state y and k?
c. Suppose the investment rate increases to 40%. What happens to the steady state y and k?
is capital per worker. Suppose the investment in capital occurs at a rate of 35% of income per
worker every period, the depreciation rate is 1.5% and the population growth rate is 2%. Use excel to
plot the production function, investment line and capital depletion line with k on the x-axis (use
the attached spreadsheet to draw your graphs).
a. What is the steady state level of y and k.
b. Suppose TFP increases by 20%. What happens to the steady state y and k?
c. Suppose the investment rate increases to 40%. What happens to the steady state y and k?
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y
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(d+n)k
Parameters
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S
0.015
0.02
5
0.35
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