ECON304 - Assignment03_KEY - F10

# ECON304 - Assignment03_KEY - F10 - Sonoma State University...

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Sonoma State University Department of Economics ECONOMICS 304 Florence Bouvet Assignment3 -Answer Key Chapters 7-8 la) Defining y = Y/L, and k = KIL, the production function can be written: y = k ll3 . b) At steady state k*, the following condition will hold: s f(k*) = (d+n) k* or s k*1/3 = (d+n) k* or k* = (s/(d+n)i /2 steady-state capital per worker: country A: k"A= (0.2 I 0.10)312 = 2.83 country B: k*B= (0.3 10.10)312 = 5.20 c) steady-state output per worker: country A: country B: steady-state consumption per worker: country A: y* A = (k* A)1/3 = (2.83)1/3 =1.4] y*B= (k*B)1/3 = (5.20)1/3 = 1.73 1.13 0.3)(1.73)= 1.21 C*A= (I-SA) y*A= (1-0.2)(1.4])= country B: C*B= (I-S8) y*B= (1- So country B has a higher consumption level (although it spends a smaller fraction of its income on consumption). This means country B is closer to the golden rule. d) Golden rule: (113) k* gOld- 2/3 = 0.07 + 0.03 k*gold=6.09: golden rule of capital stock find saving rate to produce this as a steady state, use steady state condition:

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## This note was uploaded on 04/07/2011 for the course ECON 304 taught by Professor Eyler during the Fall '07 term at Sonoma.

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ECON304 - Assignment03_KEY - F10 - Sonoma State University...

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