Question

1. You have the following information on an economy: • The savings rate is 8%. • The depreciation rate is 4%. • Output per worker is Y K Ñ = 801 Ñ Solve out for the steady state capital stock and output per worker. You need to show your calculations (you cannot just write a number as your answer) in order to get credit. 2. Suppose the savings rate and depreciation rate remain the same, but there's a change in output per worker to Solve out for the new steady state capital stock and output per worker. You need to show your calculations (you cannot just write a number as your answer) in order to get credit. 3. What happens to output per worker immediately after the shock in (2)? Does it change or stay the same?

Answer 1

At Steady state lever, S f(R) = 8k where, so savings rate given, set 8 a deireciation rate er Carital worker 8- 16.00 y = f(1) = Ouptut (worker y = 8. W o 280 - 80 / -hook 100k / VR JR = 160 k (100² i capital stock - (100) 2 per worker oustrut per (/) = 80k z sox 160 = 4280 27 if 100K then sf) - 8k & x 100 x 45 x 200 a R K 7 (200) Capital Stock / worker = (200) 2 Output Stock worker = 2oouo trom 12800. Charges to 200oo 7 worker yes output it steady will be new at Bugat Y/N = 20000 state level.