E1 An economy has a Cobb-Douglas production function:Y = K (LE)¹-α.The economy has a capital share of 1/3, a saving rate of 20 percent, a depreciation rate of5 percent, a rate of population growth of 2 percent, and a rate of labor-augmentingtechnological change of 1 percent. In steady state, capital per effective worker is:OO446O 1O 1.6

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Y = K (LE) ¹-α. e economy has a capital share of 1/3, a saving rate of 20 percent, a depreciation rate of percent, a rate of population growth of 2 percent, and a rate of labor-augmenting chnological change of 1 percent. In steady state, capital per effective worker is:

Y = K (LE) ¹-α. e economy has a capital share of 1/3, a saving rate of 20 percent, a depreciation rate of percent, a rate of population growth of 2 percent, and a rate of labor-augmenting chnological change of 1 percent. In steady state, capital per effective worker is:

ENGR.ECONOMIC ANALYSIS

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Chapter1: Making Economics Decisions

Section: Chapter Questions

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Comparative Advantage and Absolute Advantage Analysis

The theory of absolute advantage was given by Adam Smith in the year 1776.

Question

An economy has a Cobb-Douglas production function:
Y = K (LE)¹-α.
The economy has a capital share of 1/3, a saving rate of 20 percent, a depreciation rate of
5 percent, a rate of population growth of 2 percent, and a rate of labor-augmenting
technological change of 1 percent. In steady state, capital per effective worker is:
O
O
4
4
6
O 1
O 1.6

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