A small country's aggregate production function per hour of labor given by Y = K^1/2.Its depreciation rate is 1% and its investment rate is 10%.What is its steady-state level of output? A) 1 B) 10 C) 100 D) 1,000

Question

Quizplus · Accepted Answer

The steady-state level of output in a Solow growth model is determined by the point where investment equals depreciation. Given an investment rate of 10% and a depreciation rate of 1%, the steady-state level of output is not directly calculable from these rates alone without knowing the specifics of the production function and the capital stock. However, since the options provided do not correspond to a calculation that can be derived from the given function and rates, and assuming a conceptual understanding is being tested rather than a numerical calculation, the correct answer is chosen based on the assumption that the question intends to test understanding of steady-state concepts rather than specific calculations. Therefore, without a clear way to calculate the exact level of output from the provided information, any choice would be arbitrary. However, given the nature of the question, it seems there might be a misunderstanding in how it's posed, as the provided function and rates do not directly lead to a specific numerical answer among the provided options.

A Small Country's Aggregate Production Function Per Hour of Labor