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Consider again the economy of Avataria, which can be described by the Solow model. Avataria has the old depreciation rate of 8% and the
Consider again the economy of Avataria, which can be described by the Solow model. Avataria has the old depreciation rate of 8% and the production function as in part (d), Y(K,L)=10(K) 1/2(L)1/2, and its investment rate is equal to its saving rate. However, now Avataria has two saving rates: saving rate is equal to 8%, if the income per capita is below 160, saving rate is equal to 16%, if the income per capita is above 160. (e) (15 points). What will be the steady-state output per capita in Avataria, if its initial capital- labor ratio is 200? Calculate the exact value. (f) (15 points). What will be the steady-state output per capita in Avataria, if its initial capital- labor ratio is 361? Calculate the exact value. (g) (15 points). In which case, (e) or (f), do you expect Avataria to have a faster initial growth rate? Explain.
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To calculate the steadystate output per capita in Avataria we need to find the level of capital per capita k that maximizes output per capita y We can ...Get Instant Access to Expert-Tailored Solutions
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