Assume That a Country's Per-Worker Production Is Y = K1/2

question 75

Essay

Assume that a country's per-worker production is y = k1/2, where y is output per worker and k
is capital per worker. Assume also that 10 percent of capital depreciates per year (= 0.10). a. If the saving rate (s) is 0.4, what are capital per worker, production per worker, and consumption per worker in the steady state? (Hint: Use sy = δk and y = k1/2 to get an equation in s, δ, k, and k1/2, and then solve for k.)
b. Solve for steady-state capital per worker, production per worker, and consumption per worker with s = 0.6.
c. Solve for steady-state capital per worker, production per worker, and consumption per
worker with s = 0.8.
d. Is it possible to save too much? Why?

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