Imagine an economy with production function Y = F(K) = $\sqrt { K }$ and 400 units of capital. If the fraction of output invested in new capital is $\gamma$= 0.2, how much new capital will be created in the next period?

Question

Quizplus · Accepted Answer

The production function Y = $\sqrt{K}$ with K = 400 gives Y = $\sqrt{400}$ = 20. With $\gamma$ = 0.2, the new capital created is 0.2 * 20 = 4.

Imagine an Economy with Production Function Y = F(K) = K\sqrt { K }K​

Imagine an Economy with Production Function Y = F(K) = $\sqrt { K }$