A country in a steady state invests 50% of its output in new capital ($\gamma$ = 0.5)and depreciates 5% of its capital stock ($\delta$ = .05).With a capital stock of 100 units,labor remains constant.Because of technological innovation,production improves from Y = $\surd k$ to Y = 2$\surd k $
.What is the new steady-state level of output?
A) 10
B) 20
C) 40
D) 80

Question

A country in a steady state invests 50% of its output in new capital ($\gamma$ = 0.5)and depreciates 5% of its capital stock ($\delta$ = .05).With a capital stock of 100 units,labor remains constant.Because of technological innovation,production improves from  Y = $\surd k$  to Y = 2$\surd k $
.What is the new steady-state level of output?
A) 10
B) 20
C) 40
D) 80

Quizplus · Accepted Answer

The new production function doubles the output, so with a capital stock of 100 units and 50% investment, the output doubles from 20 to 40.

A Country in a Steady State Invests 50% of Its γ\gammaγ

A Country in a Steady State Invests 50% of Its $\gamma$