Shared Notes

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Activity

  • Savings rate = 0.2

    Depreciation Rate = 0.1

    Find y,k and s.

    k` – k = 0 (Steady state)

    0.2(k ^ 0.5) – 0.1k (Amount of saving)

    k` – k = 0.2(k^0.5) – 0.1k

    0 = 0.2(k^0.5) – 0.1k (k` and k are supposed to be equal in order to achieve a steady state)

    0.2(k^0.25) = 0.1k

    k^0.5 = (0.2/0.1) = 2

    k = 4

    y = k^0.5 = 2

    MP = y` = 0.5k ^ (-0.5) (Marginal Product)

    0.1 = 0.5k^-0.5

    0.2-0.2= (k^-0.5)^-2

    25=k

    y=k^0.5

    y=5