If the Canadian production function is Cobb-Douglas with capital share 0.3,output growth is 3 percent per year,depreciation is 4 percent per year,and the capital-output ratio is 2.5,the saving rate that is consistent with steady-state growth is:

Question

Quizplus · Accepted Answer

The steady-state saving rate in a Cobb-Douglas production function is calculated using the formula: s = (n + g + δ) * (K/Y), where n is the population growth rate (assumed to be 0 here), g is the output growth rate (3%), δ is the depreciation rate (4%), and K/Y is the capital-output ratio (2.5). Plugging in the values: s = (0 + 0.03 + 0.04) * 2.5 = 0.175 or 17.5%.

If the Canadian Production Function Is Cobb-Douglas with Capital Share