What is the rate of growth of the capital stock

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Reference no: EM13837364

Suppose that TFP and the population of an economy are constant over time and equal to 1. Assume that everyone works and the labor input just equals the population. Assume that the capital stock in 2014 is 1.

Suppose that the annual depreciation rate is constant and equal to 0.1 and that the savings rate in the economy is 0.2 (i.e. 20% of GDP).

Finally assume the production function: Y = K^0.5 L^0.5

a. What is GDP in 2014?

b. What is the amount of saving (and, hence, investment) in 2014?

c. What is the rate of growth of the capital stock between 2014 and 2015?

d. What is GDP in 2015?

e. What is the amount of saving (and, hence, investment) in 2015? 5

f. What is the rate of growth of the capital stock between 2015 and 2016?

g. If the rate of growth of the capital stock slowed, why? If it accelerated, why?

Reference no: EM13837364

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