An economy has the following aggregate production function: Y, = KPH/(AL )--B 0

An economy has the following aggregate production function: where Y is real output, K is physical capital, h is human capital, L is 'unskilled' labour and A, = Aoeh describes the state of technology. Also assume that L, = Loehr . Output can be used on a one-for-one basis for consumption or investment in either type Of capital, an both types of capital depreciate at the same rate, '5. Let Sk and s', be the constant fractions of income invested in physical and human capital respectively. For questions 1 and 2 assume the following parameters values: a = '3 = 0.3, 0.02, 0.05, n 0.02. 1. Calculate the steady state level of output per efficiency unit of labour (that is y for an economy in which Sk = 0.2 and Sh = 0.4. (10 marks) 2. Calculate the steady state level Of output per efficiency unit of labour for an economy in which sk = 0.2 and = 0.1. (10 marks) For questions 3 and 4 the parameter values are as per above, except that {3 = 0.05. 3. Calculate the steady state level of output per efficiency unit of labour (that is y for an economy in which Sk = 0.2 and Sh = 0.4. (10 marks) 4. Calculate the steady state level Of output per efficiency unit of labour for an economy in which = 0.2 and = 0.1. (10 marks) You should also be able to discuss your findings: for example what is the optimal rate Of investment in human capital in the two economies?