If an Economy Described by the Production Function Y = $\sqrt { K }$

question 290

Multiple Choice

If an economy described by the production function Y = $\sqrt { K }$ has 30% of output invested in new capital and 6% of the capital stock depreciated each year, what is the steady-state level of capital?

• A) 3.24 units
• B) 9 units
• C) 25 units
• D) 36 units

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Definitions:

Net Capital Outflow

The difference between domestic savings and domestic investment, representing the amount of capital leaving a country to invest abroad minus the capital inflowing from abroad for investment domestically.

Interest Rate

The percentage of a loan charged to the borrower as interest, usually represented as an annual percentage rate of the remaining loan balance.

Market For Foreign-Currency Exchange

A marketplace where participants can trade currencies from different countries, essentially a repeated framework for the process in

Real Exchange Rate

The price of one country's currency in terms of another currency, adjusted for inflation, which reflects the purchasing power between the two countries.