Consider the productionY = AK3 L2/3%3!where Y is output, A is TFP, K is the stock of capital, and L is the quantity of labor.The real interest rate R is equal to the marginal productivity of capital.R = A(+)What happens to the real interest rate if the stock of capital is divided by two, keeping population and TFPconstant? Does it increase/decrease by a factor or more/less/exactly two? Explain.

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Consider the production Y = AK13 L2/3 where Y is output, A is TFP, K is the stock of capital, and L is the quantity of labor. The real interest rate R is equal to the marginal productivity of capital. R= A(+) %3D What happens to the real interest rate if the stock of capital is divided by two, keeping population and TFP constant? Does it increase/decrease by a factor or more/lessiexactly two? Explain.

Consider the production Y = AK13 L2/3 where Y is output, A is TFP, K is the stock of capital, and L is the quantity of labor. The real interest rate R is equal to the marginal productivity of capital. R= A(+) %3D What happens to the real interest rate if the stock of capital is divided by two, keeping population and TFP constant? Does it increase/decrease by a factor or more/lessiexactly two? Explain.

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Consider the production
Y = AK3 L2/3
%3!
where Y is output, A is TFP, K is the stock of capital, and L is the quantity of labor.
The real interest rate R is equal to the marginal productivity of capital.
R = A(+)
What happens to the real interest rate if the stock of capital is divided by two, keeping population and TFP
constant? Does it increase/decrease by a factor or more/less/exactly two? Explain.

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