convergence in the standard neo-classical model. (10) Q.8. Consider a hypothetic
ID: 1120146 • Letter: C
Question
convergence in the standard neo-classical model. (10) Q.8. Consider a hypothetical economy where the technology of production in its intensive form is given by y kV4. It is known that households save 24% of their annual incomes. Furthermore, the population growth rate, the rate of technical progress and the depreciation rate of capital are 2%, 3% and 3% per annum respectively a. Determine the steady state values of ky, and e' for this economy? b. Determine the average product of labour and the rates of growth of Y, K/L and APL for this c. Is this economy saving too much or too less? Calculate and explain using graph. What policy would d. Suppose that the population growth rate permanently declines to 1% per annum. How will it affect the e. Draw diagram(s) indicating all points. economy? you recommend for this country in given scenario? growth rate of per capita output of the economy? (15)Explanation / Answer
s* k^a=(n+)*k
0.4*(k^0.2) = 0.22*k
k = 2.114 = Long Run K/L
y = T*(k^a) = 116.15 = Long Run Y/L
Long Run Gross Savings per Capita = s*y = 46.46
Long Run Consumption per Capita = (1-s)*y = 69.69
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