The next questions refer to the following.
Consider an economy with the production function , a depreciation rate of 5%, a saving and investing rate of 10%, and no labor growth.
-If the saving and investing rate rose to 20% of income,in the long run,this economy's GDP would

Question

The next questions refer to the following.
Consider an economy with the production function  , a depreciation rate of 5%, a saving and investing rate of 10%, and no labor growth.
-If the saving and investing rate rose to 20% of income,in the long run,this economy's GDP would

Quizplus · Accepted Answer

The production function, 11ea782c_47d0_ed0d_bbd5_b1bf44a58116_TB4973_11, suggests that output (Y) is determined by the amount of capital (K) and labor (L) used in production. With no labor growth, an increase in the saving and investing rate would lead to an increase in the accumulation of capital over time. Given the constant depreciation rate of 5%, the new steady state capital stock would be twice the original level (K'), where K' = 2/(0.05+0.1)*Y. As a result, output in the long run would also double, as output in the steady state is determined by the level of capital stock available. Therefore, the correct answer is C) double.

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