Question

2. (15 pts). Assume that the per-worker production function is y, 5.k Further, assume that the saving rate, s = 0.2, the depreciation rate, 8 0.04, and the population growth rate, n- 0. Calculate the following: (a) The steady-state values of the capital-labor ratio, k", output per worker, y, and consumption, c'. (b) The new steady-state values of the capital-labor ratio, output, and consumption (k, yi, and ci), if there is population growth so that n: 0.06. (c) Show your results from parts (a) and (b) on the same graph. Explain them briefly. What effects does a population growth have on the economy? What happens to living standards when there is a population growth?

Answer 1

AK- s.y - Sk = 0 0.28K = 0.04k "12 LI K = 5 = 5x5 25 1 sapital por Worker output per workes. y = - E 5 & 0. 8x5 4 7 per Consumption worker. 1 0.2x = 10.04 + 0.06 k a 0.2k 100 - o.lk = K 12 [= 474 19 = 24 = 0.8 x 2. Capital per worker output per worker Consumption for worker. letnk die Increase in population in would reduce the per capital capital and y falle. Hente, living standard decreases on increase in etu population grow.lt rate Capital per worker