This question aims to explore some of the points discussed about the Solow-Swan model. Consider an economy with the general Cobb-Douglas production function: Y = A* Ka L(1-a) The equation describing capital dynamics is: Kt+1 = K; + I¿ - dK; Where d is a constant parameter that captures the depreciation rate. Investment follows a behavioural equation as discussed in class, ie, a constant 's' fraction of output is invested in every period. Answer the following questions assuming that labour grows at the rate n = 0 and adopting the assumptions made in lecture. Assume: s = 0.60, d = 0.10, a = 0.5, L= 1and A= 1. Select one: O a. The level of the interest rate in steady state is 8.33% O b. The level of the interest rate in steady state is 40.82% O. The level of the interest rate in steady state is 20.41% O d. The level of the interest rate in steady state is 18% O e. More information is required to compute the interest rate in equilibrium

This question aims to explore some of the points discussed about the Solow-Swan model. Consider an economy with the general Cobb-Douglas production function: Y = A* Ka L(1-a) The equation describing capital dynamics is: Kt+1 = K; + I¿ - dK; Where d is a constant parameter that captures the depreciation rate. Investment follows a behavioural equation as discussed in class, ie, a constant 's' fraction of output is invested in every period. Answer the following questions assuming that labour grows at the rate n = 0 and adopting the assumptions made in lecture. Assume: s = 0.60, d = 0.10, a = 0.5, L= 1and A= 1. Select one: O a. The level of the interest rate in steady state is 8.33% O b. The level of the interest rate in steady state is 40.82% O. The level of the interest rate in steady state is 20.41% O d. The level of the interest rate in steady state is 18% O e. More information is required to compute the interest rate in equilibrium

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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