What is the rate of depreciation in this economy

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You observe the following facts about a fictional economy: The capitaloutput ratio is 3. The country uses 15% of GDP to replace depreciated capital. The average growth rate of the economy is 2.5 percent. The capital share of output is 35%. Assume that the economy is at a steady-state, and that its output is produced by a Cobb-Douglas production function. a) What is the rate of depreciation in this economy? b) What is the saving rate in this economy? c) What is the marginal product of capital in this economy? d) What is the GOLDEN RULE marginal product of capital in this economy? Compare to your answer to part c) and interpret (that means you should talk about what it means if they are not the same and what the economic implications are). e) Let us say this country changed its saving rate to arrive at the GOLDEN RULE steady state. What would be the new capital-output ratio at the GOLDEN RULE steady state? f) What is the saving rate required to reach the GOLDEN RULE steady state?

Reference no: EM131089781

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