Question
A closed economy is described by the production function F(K, L) = K 1 3 L 2 3 . The depreciation rate is 0.1 and
A closed economy is described by the production function F(K, L) = K 1 3 L 2 3 . The depreciation rate is 0.1 and the saving rate is 0.4. For the moment suppose that there is no technological progress and the population growth rate is 0.
a) Compute the per capita production function and illustrate it with the help of a graph (remember to explain the shape of the curve).
b) Define briefly the steady state and illustrate it with the help of a graph! Explain the shape of the curve.
c) Compute the capital intensity, per capita investment and per capita consumption in the steady state!
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