Question

B. Competitive Factor Markets The production uses Cobb-Douglass technology, F(K, Li) = KL-4; a< 1, and thus output per capita is given by f (kt) = kim where he = K/L. Competitive factor markets imply that the wage rate is W = F ( KL) = f (ke) - kif' (he). Household asset, Ae, consists of capital stock, K, and government bonds, B. Since risk bonds are in zero net supply, in the aggregate B -0. Thus market cleaning implies Qe =ke. Then the market return on asset, Q = ke, (which depreciates at the rate 8) is r = FK (KL)- = f'(k) - 8. Explain how the steady-state values depend on the parameters, p, , and n.?

Answer 1

The The steady tendu state n t qinen P PAT ALTILINIATURAL value in slow Modet is given per worker production funchan: y = f(K) - (k) ~ as: Thus, Ginen the aboue steady state formula, it can be stated that as steady Danings rate increases, the steady state value of capital for worker increases and nice versa. Also, as depriciation rate and population prouth rate increases the steady state value of capital. decreases and nice-versa.