Assume That a Country's Per-Worker Production Is Y = K^1/2 $0.4$

question 82

Essay

Assume that a country's per-worker production is y = k^1/2, 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 $s y = \delta k$ and $y = k ^ { 1 / 2 }$ to get an equation in $s , \delta , k$ , and $k ^ { 1 / 2 }$ , 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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Definitions:

Revaluation

The process of adjusting the book value of a fixed asset or security to reflect its current market value.

Fair Value

The estimated price at which an asset or liability could be exchanged between knowledgeable, willing parties in an arm's length transaction.

Business Combination

A transaction or event through which a company acquires control over one or more businesses.