Question
Assume that in Country X, output is produced with labour and physical capital. The production function in per-worker terms is = 1/2. The depreciation rate
Assume that in Country X, output is produced with labour and physical capital.
The production function in per-worker terms is = 1/2.
The depreciation rate is 2%.
The investment rate is as determined as follows:
= 0.20 f 10
= 0.40 f > 10
Draw a well-labelled diagram showing the steady-state(s) of this model.
Calculate the values of any steady-state levels of k and y.
Also, indicate on the diagram and describe briefly, in words, how the levels of k and y behave outside the steady-state(s).
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