An economy produces with the production technology Y = F(K, EL) = K^1/3 (EL)^2/3, where E...
An economy produces with the production technology Y = F(K, EL) = K^1/3 (EL)^2/3, where E is a labor-augmenting technology. Population grows at 2% per year and E grows at 3% per year. The depreciation rate is 5% and the saving rate is 40%. The economy is in steady state.
a. What is the growth rate of each of the following: K/EL, Y/EL, EL, Y, Y/L, K/Y, C
b. At what rate do wages and the capital rental rate grow?
c. Find the steady state value of capital per effective worker
d. In 2014. L = 100 and E = 10. Find total output in 2014 and 2015.
e. If the economy wants to maximize consumption, should it save more or less? Find the consumption maximizing saving rate.
f. Now assume a hurricane hits in 2014 and reduces labor to 90. What happens to steady state output and capital (per effective worker)? What happens to output and capital today (both per effective worker and total)? What about their growth rates?
g. Another country uses the same production technology, has the same level of total capital, but has fewer workers. If there is free mobility across countries (so wage rates are equalized), what can we say about the value of E in the other country.
Can someone help me with part g?
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An economy produces with the production technology Y = F(K, EL)
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