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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