Consider the Solow growth model with labor growth and no technology growth, i.e., n = 0, x = 0. Output is created by a Cobb-Douglas produc- n0,x tion function combining Labor, Lt, and capital, Kt, such that output, Y+is given by Y₁ = A+ KL Yt 1-a For a given time t, Given a level of Capital, and Investment, It, and a depreciation rate of capital, 8, the level of capital at time t+1 is given by the following law of motion of capital K++1 = Kt - 8Kt + It The labor growth rate in this economy is n = 2%, depreciation is 8 = 4%, the savings rate is s = 25%, and a = 0.3. Initial levels of capital, labor and technology are Ko = 10, Lo = 5, Ao = 1 respectively. The economy is assumed to be closed with no government spending. What is the value for capital per worker at time t = 1? (a) 2.22 (b) 2.57 (c)1.78 (d) 1.82
Consider the Solow growth model with labor growth and no technology growth, i.e., n = 0, x = 0. Output is created by a Cobb-Douglas produc- n0,x tion function combining Labor, Lt, and capital, Kt, such that output, Y+is given by Y₁ = A+ KL Yt 1-a For a given time t, Given a level of Capital, and Investment, It, and a depreciation rate of capital, 8, the level of capital at time t+1 is given by the following law of motion of capital K++1 = Kt - 8Kt + It The labor growth rate in this economy is n = 2%, depreciation is 8 = 4%, the savings rate is s = 25%, and a = 0.3. Initial levels of capital, labor and technology are Ko = 10, Lo = 5, Ao = 1 respectively. The economy is assumed to be closed with no government spending. What is the value for capital per worker at time t = 1? (a) 2.22 (b) 2.57 (c)1.78 (d) 1.82
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Consider the Solow growth model with labor growth and no technology
growth, i.e., n = 0, x = 0. Output is created by a Cobb-Douglas produc-
n0,x
tion function combining Labor, Lt, and capital, Kt, such that output, Y+is
given by
Y₁ = A+ KL
Yt
1-a
For a given time t, Given a level of Capital, and Investment, It, and a
depreciation rate of capital, 8, the level of capital at time t+1 is given by
the following law of motion of capital
K++1
=
Kt - 8Kt + It
The labor growth rate in this economy is n = 2%, depreciation is 8 = 4%,
the savings rate is s = 25%, and a = 0.3. Initial levels of capital, labor
and technology are Ko = 10, Lo = 5, Ao = 1 respectively. The economy
is assumed to be closed with no government spending. What is the value
for capital per worker at time t = 1?
(a) 2.22 (b) 2.57 (c)1.78 (d) 1.82
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