A Country in a Steady State Invests 50% of Its $\gamma$

question 189

Multiple Choice

A country in a steady state invests 50% of its output in new capital ( $\gamma$ = 0.5) and depreciates 5% of its capital stock ( $\delta$ = .05) . With a capital stock of 100 units, labor remains constant. Because of technological innovation, production improves from Y = $\sqrt { K }$ to Y = 2 $\sqrt { K }$
. What is the new steady-state level of K?

• A) 100
• B) 256
• C) 400
• D) 1,600

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Definitions:

Net Income

The net income of a company once all costs, taxes, and losses have been deducted.

Partial Equity Method

An accounting technique used when a company has significant influence over another company but does not control it outright, recognizing income to the extent dividends are received.

Net Income

The total earnings of a company after subtracting all expenses and taxes from total revenue.

Annual Amortization

The process of gradually writing off the initial cost of an intangible asset over its useful life on a yearly basis.