Question 4 4(a) The following equation is associated with the Cobb-Douglas production function: AY/ Y = a AK/ K + (1- a) AL/ L + AA/ A (where Y = output; K = capital stock; L = labour force; A = total factor productivity and a = capital's share of income). Derive the above equation from first principles. 4(b) Explain the meaning of the equation in dart (a) and its significance in production theory. 4(c) Use diagrams and mathematical analysis to explain how the Golden Rule level of Capital (k*gold) can be derived in the Solow growth model (assume you are dealing with a closed economy without a Government). Please include investment, population growth and advances in technology in the model. 4(d) Is the Golden Rule level of Capital the ideal steady state for the economy? Exploin
Question 4 4(a) The following equation is associated with the Cobb-Douglas production function: AY/ Y = a AK/ K + (1- a) AL/ L + AA/ A (where Y = output; K = capital stock; L = labour force; A = total factor productivity and a = capital's share of income). Derive the above equation from first principles. 4(b) Explain the meaning of the equation in dart (a) and its significance in production theory. 4(c) Use diagrams and mathematical analysis to explain how the Golden Rule level of Capital (k*gold) can be derived in the Solow growth model (assume you are dealing with a closed economy without a Government). Please include investment, population growth and advances in technology in the model. 4(d) Is the Golden Rule level of Capital the ideal steady state for the economy? Exploin
Chapter1: Making Economics Decisions
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Transcribed Image Text:Question 4
4(a) The following equation is associated with the Cobb-Douglas production function:
AY/ Y = a AK/ K+ (1- a) AL/ L+ AA/ A
(where Y = output; K = capital stock; L = labour force; A = total factor productivity
and a = capital's share of income).
%3D
Derive the above equation from first principles.
4(b) Explain the meaning of the equation in dart (a) and its significance in production
theory.
4(c) Use diagrams and mathematical analysis to explain how the Golden Rule level
of Capital (k"gold) can be derived in the Solow growth model (assume you are dealing
with a closed economy without a Government). Please include investment,
population growth and advances in technology in the model.
4(d) Is the Golden Rule level of Capital the ideal steady state for the economy?
Explain your answer.
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