Consider a Country operating according to the Solow model with production functi

Question

Consider a Country operating according to the Solow model with production function: Y = K ^1/2 * L^1/2 . Assume that the saving rate is 0.3 (30%), the depreciation rate of capital is 0.09 (9%) and the population growth rate is 0.01 (1%). Recall that in the per worker production function y = k ^ alpha , the M P K = alpha * k ^alpha - 1.

Assume again that there is no technological progress. Assume that this Country is currently operating at the steady state obtained using the original information (i.e. saving rate equal to 0.3, depreciation rate of capital equal to 0.09 and population growth rate equal to 0.01). Which of the following is true?

a) Current consumption is c = 1.1, while consumption at the Golden Rule steady state would be cgold = 0.5

b) Current consumption is c = 2.1, while consumption at the Golden Rule steady state would be cgold =2.5

c) Current consumption is c = 1.1, while consumption at the Golden Rule steady state would be cgold = 2.5

d) Current consumption is c = 1.5, while consumption at the Golden Rule steady state would be cgold = 3.5

e)Current consumption is c = 3, while consumption at the Golden Rule steady state would be cgold = 5

Explanation / Answer

d) Current consumption is c = 1.5, while consumption at the Golden Rule steady state would be cgold = 3.5

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.