Calculate capital-output and growth rates

Assignment Help Business Economics

Reference no: EM131246723

Consider the country Spendthriftia, with a depreciation rate ¯d = 0.1, TFP A = 1, labor force L = 100 and saving rate s = 0.1.

The country has the following production function: Yt = AK¯ 1/3 t L 2/3 t .

(a) Find the steady state level of capital in the economy K∗ , output Y ∗ and consumption C ∗

(b) One morning the citizens decide that they need to save more for the future and increase their saving rate to s = 0.25. Find the new values for K∗ , Y ∗ and C ∗

(c) Starting from the first steady state, calculate capital, output and growth rates for the next 25 periods. (Hint: You might find it easier to use a spreadsheet program and the table we constructed in class.) What can you say about the growth rate? How many years does it take for output to close half the gap between the initial and the final steady state?

Reference no: EM131246723

Questions Cloud

Compute the market equilibrium outcome : Madison has two residents: Sam and Ryan. Both love to drive. Each resident’sutility depends positively on the weight of his own car (Wr or Ws) and the totalamount of a public good, snow removal, purchased in the town. Compute the market equilibrium o..

Analyze the affordable care law : For your project, analyze the Affordable Care Law in a 9-10 page paper not including the title or references pages. In your analysis you will need to address the following: How all three branches of government were involved in its creation, and the..

How have their incentives to purchase snow removal changed : Madison has two residents: Sam and Ryan. Both love to drive. Each resident’sutility depends positively on the weight of his own car (Wr or Ws) and the totalamount of a public good, snow removal, purchased in the town. Speci?cally,both residents i hav..

Satisfied for the last dollar of money income : What condition must be satisfied for the last dollar of money income that a consumer of Jil Sander sweaters spends on a roll of breath mints?

Calculate capital-output and growth rates : Consider the country Spendthriftia, with a depreciation rate ¯d = 0.1, TFP A = 1, labor force L = 100 and saving rate s = 0.1. Starting from the first steady state, calculate capital, output and growth rates for the next 25 periods. How many years do..

Changing your range of choices in radio stations : How do you feel this has impacted the range of choice you have in radio stations? Did government deregulation cause the creation of monopolies? Why or why not? How are natural market forces and other economic factors changing or not changing your ran..

Using the figure consumption to disposable income : Using the figure consumption to disposable income ($1100), explain how and in what direction an increase in consumption would change the interest rate in the consumption theory?

Equivalent to this cash flow system : A series of equal semiannual cash flows starts with the first cash flow occurring on January 1,1991and ends with the last cash flow occurring on January 1,2008. Each cash flow is equal to $128,000. The nominal interest rate is 12% and compounding is ..

The stability of fiscal policy : The stability of fiscal policy. (Blinder and Solow, 1973.) By definition, the budget deficit equals the rate of change of the amount of debt outstanding: δ(t)=?(t). Define d(t) to be the ratio of debt to output: d(t)=D(t)Y(t). Assume that Y(t) grows ..

User Account

All Pages