Imagine an Economy with Production Function Y = F(K) = $\sqrt { K }$

question 3

Multiple Choice

Imagine an economy with production function Y = F(K) = $\sqrt { K }$ and 400 units of capital. If the fraction of output invested in new capital is $\gamma$ = 0.2, the depreciation rate is $\delta$ = .05, and the economy starts with output of 20, what does the Solow model predict will happen to output in the long run?

• A) It will remain at 20.
• B) It will decline.
• C) It will increase.
• D) It will increase for a time and then return to 20.

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Definitions:

Phased Conversion

Implementation process that introduces components of the new system in stages, until the entire new system is operational.

System Stages

The phases or steps in the lifecycle of a system, including conception, development, deployment, operation, and decommissioning.

Parallel Conversion

A method of implementing a new system where the old and new systems run simultaneously for a period of time to ensure the new system works correctly.

Old Systems

Outdated or legacy technology and processes that are still in use within an organization.