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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

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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
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
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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