Macmillan Learning Suppose Westeros produces output according to the production function: Y = √K The fraction of output that is saved and invested in new capital is 20%. The depreciation rate is 5%. Use this information to answer the following questions. a. What is the steady-state amount of capital (K) in Westeros? b. What is the steady-state amount of output (Y*) in Westeros? c. If Westeros had started out with 25 units of capital, what would the Solow model predict would happen to its output in the long run? O It will decrease, since that is above its steady state level of output of 4 O It will decrease, since that is above its steady state level of output of 16 It will increase, since that is below its steady state level of output of 16 It will increase, since that is above its steady state level of output of 41 It will remain at 25, since that is its steady state level of output

Macmillan Learning Suppose Westeros produces output according to the production function: Y = √K The fraction of output that is saved and invested in new capital is 20%. The depreciation rate is 5%. Use this information to answer the following questions. a. What is the steady-state amount of capital (K) in Westeros? b. What is the steady-state amount of output (Y*) in Westeros? c. If Westeros had started out with 25 units of capital, what would the Solow model predict would happen to its output in the long run? O It will decrease, since that is above its steady state level of output of 4 O It will decrease, since that is above its steady state level of output of 16 It will increase, since that is below its steady state level of output of 16 It will increase, since that is above its steady state level of output of 41 It will remain at 25, since that is its steady state level of output

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Suppose Westeros produces output according to the production function:
Y = √K
The fraction of output that is saved and invested in new capital is 20%.
The depreciation rate is 5%.
Use this information to answer the following questions.
Macmillan Learning
a. What is the steady-state amount of capital (K) in Westeros?
b. What is the steady-state amount of output (Y*) in Westeros?
c. If Westeros had started out with 25 units of capital, what would the Solow model predict would happen to its output in
the long run?
O It will decrease, since that is above its steady state level of output of 4
It will decrease, since that is above its steady state level of output of 16
It will increase, since that is below its steady state level of output of 16
It will increase, since that is above its steady state level of output of 41
It will remain at 25, since that is its steady state level of output

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