Question

3. A closed economy has a production function: Y-K1 3L2/3, where K denotes machines and L denotes workers. The population grows at a rate 2% per year and there is no technological progress. The depreciation rate is 3%. The saving rate, s, depends on the level of capital per worker, k, as follows: 5% if k < 5 (7k-30)% if 5 < k < 10 40% if k > 10 8 There are three steady states with k > 0: a low-income stable steady state, a middle unstable steady state, an a high-income stable steady state. Capital per worker in the middle unstable steady state is 6.8661 (a) Find output per worker in the low-income stable steady state (b) Find output per worker in the high-income stable steady state (c) Assume the economy is in the low-income stable steady state. A donor is discussing a development aid in the form of a large-scale capital investment What is the minimum integer amount of machines per worker that the donor should provide so that the economy could escape the poverty trap and eventually converge to the high-income stable steady state? [In answering the question, assume there are no leakages, transaction costs, or any other frictions.]

Answer 1

Answer:---  
42nd Wenk SAT 必鸭ー@apild'her e20 r.α r uk 15 54 ORTANT 7-44

ad middle cunslable steady slade: ik ck O05 LK NIT

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