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, what is the steady-state amount of capital?

Question

Quizplus · Accepted Answer

The steady-state amount of capital is found by solving for K in the equation:$$K = \frac{1}{1-\gamma+\delta} Y$$Substituting in the given values, we get:$$K = \frac{1}{1-0.2+0.05} \sqrt{K}$$Solving for K, we get:$$K = 100$$

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

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