8. Suppose that the economy described in Question 5 was at its steady state level of capital Kss when there's a unexpected increase of the capital stock. After this shock, the capital stock, Ko, was 20 percent higher than the initial steady state. i.e. Ko = 1.20Kss Compute K₁. (a) 8.12 (b) 9.56 (c) 10.21 (d) 15.33 Consider the Solow growth model with no population growth and no tech- nology growth, i.e., n = x = 0. Output is created by a Cobb-Douglas pro- duction function combining Labor, Lt, and capital, Kt, such that output Yt is given by Y₁ = At Ko La - Lo and assume that Lo = 2. Recall that, without population growth, Lt Furthermore, recall that, without technology growth, At rate is = = Ao and assume that Ao = 1. Assume that the savings rate is s = 0.4, the depreciation 0.15, and that the capital share is a = 0.3. A lower case letter denotes a variable in per capita. For example, kt = Kt/Lt. In the following questions, choose the closest number. What is the value of kss? (a) 40.6 (b) 4.1 (c) 2.8 (d) 28
8. Suppose that the economy described in Question 5 was at its steady state level of capital Kss when there's a unexpected increase of the capital stock. After this shock, the capital stock, Ko, was 20 percent higher than the initial steady state. i.e. Ko = 1.20Kss Compute K₁. (a) 8.12 (b) 9.56 (c) 10.21 (d) 15.33 Consider the Solow growth model with no population growth and no tech- nology growth, i.e., n = x = 0. Output is created by a Cobb-Douglas pro- duction function combining Labor, Lt, and capital, Kt, such that output Yt is given by Y₁ = At Ko La - Lo and assume that Lo = 2. Recall that, without population growth, Lt Furthermore, recall that, without technology growth, At rate is = = Ao and assume that Ao = 1. Assume that the savings rate is s = 0.4, the depreciation 0.15, and that the capital share is a = 0.3. A lower case letter denotes a variable in per capita. For example, kt = Kt/Lt. In the following questions, choose the closest number. What is the value of kss? (a) 40.6 (b) 4.1 (c) 2.8 (d) 28
Chapter20: Economic Growth In The Global Economy
Section: Chapter Questions
Problem 5P
Related questions
Question
![8. Suppose that the economy described in Question 5 was at its steady state
level of capital Kss when there's a unexpected increase of the capital
stock. After this shock, the capital stock, Ko, was 20 percent higher than
the initial steady state. i.e. Ko = 1.20Kss Compute K₁.
(a) 8.12
(b) 9.56
(c) 10.21
(d) 15.33](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6035f1a2-2c03-490a-9469-88f7b64e730f%2F6caa3825-cd30-450f-bb02-81e53a447396%2Fshzvbt_processed.png&w=3840&q=75)
Transcribed Image Text:8. Suppose that the economy described in Question 5 was at its steady state
level of capital Kss when there's a unexpected increase of the capital
stock. After this shock, the capital stock, Ko, was 20 percent higher than
the initial steady state. i.e. Ko = 1.20Kss Compute K₁.
(a) 8.12
(b) 9.56
(c) 10.21
(d) 15.33
![Consider the Solow growth model with no population growth and no tech-
nology growth, i.e., n = x = 0. Output is created by a Cobb-Douglas pro-
duction function combining Labor, Lt, and capital, Kt, such that output
Yt is given by
Y₁ = At Ko La
-
Lo and assume that Lo
=
2.
Recall that, without population growth, Lt
Furthermore, recall that, without technology growth, At
rate is =
=
Ao and assume
that Ao = 1. Assume that the savings rate is s = 0.4, the depreciation
0.15, and that the capital share is a = 0.3. A lower case
letter denotes a variable in per capita. For example, kt = Kt/Lt. In the
following questions, choose the closest number. What is the value of kss?
(a) 40.6
(b) 4.1
(c) 2.8
(d) 28](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6035f1a2-2c03-490a-9469-88f7b64e730f%2F6caa3825-cd30-450f-bb02-81e53a447396%2Fmv1al9o_processed.png&w=3840&q=75)
Transcribed Image Text:Consider the Solow growth model with no population growth and no tech-
nology growth, i.e., n = x = 0. Output is created by a Cobb-Douglas pro-
duction function combining Labor, Lt, and capital, Kt, such that output
Yt is given by
Y₁ = At Ko La
-
Lo and assume that Lo
=
2.
Recall that, without population growth, Lt
Furthermore, recall that, without technology growth, At
rate is =
=
Ao and assume
that Ao = 1. Assume that the savings rate is s = 0.4, the depreciation
0.15, and that the capital share is a = 0.3. A lower case
letter denotes a variable in per capita. For example, kt = Kt/Lt. In the
following questions, choose the closest number. What is the value of kss?
(a) 40.6
(b) 4.1
(c) 2.8
(d) 28
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