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I am confused with such questions 1. Problem 1 (50 pts) Country A and B have the same production function: Y = F(K, L) =

I am confused with such questions

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1. Problem 1 (50 pts) Country A and B have the same production function: Y = F(K, L) = K1/211/2 (a) Does this production function has constant returns to scale? Justify your answer. (b) What is the per-worker production function, Y/L = f(K/L) (c) Assume that neither country experiences population growth or technological progress and that 5 percent of capital depreciates each year. Assume further that country A saves 10 percent of output each year, and country B saves 20 percent of output each year. i. Find for each country the steady state level of capital per worker, the steady-state level of income per worker and consumption per worker ( c = (1 - s) * y, s is the saving rate and identical to the investment rate seen in class). ii. If one considers that the standard of living is captured by consumption level, then compute the ratio of standard of living or (CB/ c* ) and comment. (d) Suppose that both countries start off at t = 0 with a capital stock per worker of 2. i. What are the initial levels of income per worker and consumption per worker? ii. Why is country B's consumption per worker initially smaller than coun- try A's, and why will it grow to be larger than country A's in the (very) long run? iii. Why do standards of living in both countries converge to steady states rather than continuing to improve in the (very) long run

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