Assume an endogenous growth model with labor augmenting technology and a production function of the form Y = F(K,AN), where A = 1.2(K/N) such that y = (1.2)k.If the rate of population growth is n = 0.06 and the rate of depreciation is d = 0.04, how large does the savings rate (s) have to be to achieve a per-capita growth rate of 8 percent?
A)6%
B)10%
C)15%
D)24%
E)30%

Question

Quizplus · Accepted Answer

The per-capita growth rate in this model is given by g = (1+A)(s/(1+s)-(d+n)). Plugging in the given values, we get:

8% = (1+1.2(k/n))(s/(1+s)-(0.04+0.06))

Simplifying and solving for s, we get:

s = 0.15 or 15%

Assume an Endogenous Growth Model with Labor Augmenting Technology and a Production