Assume that a country's per-worker production is y = k^1/2, where y is output per worker and k is capital per worker. Assume also that 10 percent of capital depreciates per year (= 0.10).

a. If the saving rate (s) is $0.4$ , what are capital per worker, production per worker, and consumption per worker in the steady state? (Hint: Use $s y = \delta k$ and $y = k ^ { 1 / 2 }$ to get an equation in $s , \delta , k$ , and $k ^ { 1 / 2 }$ , and then solve for $k$ )
b. Solve for steady-state capital per worker, production per worker, and consumption per worker with $s = 0.6$ .
c. Solve for steady-state capital per worker, production per worker, and consumption per worker with $s = 0.8$ .
d. Is it possible to save too much? Why?

Question

Assume that a country's per-worker production is y = k^1/2, where y is output per worker and k is capital per worker. Assume also that 10 percent of capital depreciates per year (= 0.10).

a. If the saving rate (s) is

0.4

, what are capital per worker, production per worker, and consumption per worker in the steady state? (Hint: Use

s y = \delta k

and

y = k ^ { 1 / 2 }

to get an equation in

s , \delta , k

, and

k ^ { 1 / 2 }

, and then solve for

k

)
b. Solve for steady-state capital per worker, production per worker, and consumption per worker with

s = 0.6

.
c. Solve for steady-state capital per worker, production per worker, and consumption per worker with

s = 0.8

.
d. Is it possible to save too much? Why?

Quizplus · Accepted Answer

The Answer of Assume that a country's per-worker production is y = k^1/2, where y is output per worker and k is capital per worker. Assume also that 10 percent of capital depreciates per year (= 0.10). a. If the saving rate (s) is $0.4$, what are capital per worker, production per worker, and consumption per worker in the steady state? (Hint: Use $s y = \delta k$ and $y = k ^ { 1 / 2 }$ to get an equation in $s , \delta , k$, and $k ^ { 1 / 2 }$, and then solve for $k$ ) b. Solve for steady-state capital per worker, production per worker, and consumption per worker with $s = 0.6$. c. Solve for steady-state capital per worker, production per worker, and consumption per worker with $s = 0.8$. d. Is it possible to save too much? Why?

Assume That a Country's Per-Worker Production Is Y = K1/2 0.40.40.4

Assume That a Country's Per-Worker Production Is Y = K^1/2 $0.4$