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 and the depreciation rate is$\delta$ = .05, how much total capital will be available in the next period?

Question

Quizplus · Accepted Answer

The new capital is calculated as: New Capital = (1 - δ)K + γY. Here, K = 400, Y = √400 = 20, δ = 0.05, and γ = 0.2. So, New Capital = (1 - 0.05) * 400 + 0.2 * 20 = 380 + 4 = 384 units.

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

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