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

question 237

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 output?

• A) 10
• B) 20
• C) 40
• D) 80

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Definitions:

Economically Efficient

A situation where resources are allocated in a way that maximizes the net benefit to society.

Barriers To Entry

Factors that make it difficult for new firms to enter an industry, such as high initial investment, legal restrictions, or strong brand loyalty among consumers.

Network Effects

The phenomenon whereby increased numbers of people or participants improve the value of a good or service.

Economies Of Scale

The benefit that larger operations have, which allows them to produce goods or services at a lower unit cost as production scales up.