If the Japanese Production Function Is Cobb-Douglas with Capital Share

question 34

Multiple Choice

If the Japanese production function is Cobb-Douglas with capital share 0.3, output growth is 3 percent per year, depreciation is 4 percent per year, and the capital-output ratio is 2.5, the saving rate that is consistent with steady-state growth is:

• A)12.5 percent.
• B)14 percent.
• C)17.5 percent.
• D)20 percent.

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Definitions:

Current Account

A component of a country's balance of payments that measures the trade in goods and services, plus net earnings on investments, and direct transfers.

Capital Account

Part of a country's balance of payments, recording the net change in asset ownership and investments.

Foreign Exchange Markets

Global decentralized or over-the-counter markets for trading currencies, determining the foreign exchange rates.

High Rates of Inflation

A situation where the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling, is significantly above the normal rate.