Question

Questions: 1. In the French town of Louisbourg, (now part of Nova Scotia), in 1757, the aggregate production function per worker was y Ako 75 Louisbourg's workers save a fraction, s, of their incomes, so aggregate savings is given by S sY. 1a. If the savings rate, population growth, depreciation rate and productivity are: s 0.25 n 0.15, d 0.10, A 4, then what was the steady-state capital-labour ratio k* and kGolden Given k*, what are steady-state output per-worker, y*, steady-state consumption per- worker, c*, and steady-state investment per-worker, i*? (No figure required) (9 Marks) 1b. The British captured Louisbourg and in 1760 destroyed part of the buildings (capital) so k is now 100. Assuming this did not impact A, N, s or d, how would your answer differ from 1a? Describe and show calculations of what is occurring over time and link your description to a figure. What would happen instead if the British had built buildings and increased k to 400? (Figure does not have to be to scale.) (10 Marks)

Answer 1

0.79 Y = AK 4K = sy- (ntok = 0 sy - ( non K 6.75 25 X TAR - (0.15 + 0.10).k 27 - 0.25k 4 = K 6.75 K 4 v.25 K = 1k = 2567 0.25 Y = 4X (256) -- 4x4 E 16] (1-0.25 x 16 – v. 25x16 E12] ca (uto (2) when kis too, et is larger than the steady state level. Thas, over etre period of time. Kt will decrease and consumption will rise. when K is 2009 It is less than steady state, 8. але | we he iu u po Сара capital, initially consumption will fall but over the long ron, there will be rire in consumption. 0 400 6 100 256