Suppose TFP is fixed at A =1 and both the labor input and population size is fixed and equal to 1. Assume an economy has Cobb-Douglas technology with a = 0.5. The depreciation rate of capital is 14% per year. Households consume 90% of their income and save the remaining 10% of their income. There is no government. A) Solve for GDP per person in the steady state. B) Suppose the country wants to increase its steady- state value of GDP per person. What fraction of income would households have to save to achieve a steady state level of GDP per person that is twice as high as in Part A?
Suppose TFP is fixed at A =1 and both the labor input and population size is fixed and equal to 1. Assume an economy has Cobb-Douglas technology with a = 0.5. The depreciation rate of capital is 14% per year. Households consume 90% of their income and save the remaining 10% of their income. There is no government. A) Solve for GDP per person in the steady state. B) Suppose the country wants to increase its steady- state value of GDP per person. What fraction of income would households have to save to achieve a steady state level of GDP per person that is twice as high as in Part A?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![Suppose TFP is fixed at A =1 and both the labor input
and population size is fixed and equal
to 1. Assume an economy has Cobb-Douglas
technology with a = 0.5. The depreciation rate
of capital is 14% per year. Households consume 90%
of their income and save the remaining 10% of their
income. There is no government.
A) Solve for GDP per person in the steady state.
B) Suppose the country wants to increase its steady-
state value of GDP per person. What
fraction of income would households have to save to
achieve a steady state level of GDP
per person that is twice as high as in Part A?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F807e2d26-4133-437e-b07d-33d279243679%2Ff32aa2d9-40c3-4665-afb5-2a9e8bb432a7%2Fwx59uln_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Suppose TFP is fixed at A =1 and both the labor input
and population size is fixed and equal
to 1. Assume an economy has Cobb-Douglas
technology with a = 0.5. The depreciation rate
of capital is 14% per year. Households consume 90%
of their income and save the remaining 10% of their
income. There is no government.
A) Solve for GDP per person in the steady state.
B) Suppose the country wants to increase its steady-
state value of GDP per person. What
fraction of income would households have to save to
achieve a steady state level of GDP
per person that is twice as high as in Part A?
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