Question
In the nation of Winknam, the capital share of GDP is 45 percent, the average growth in output is 3.0 percent per year, the depreciation
In the nation of Winknam, the capital share of GDP is 45 percent, the average growth in output is 3.0 percent per year, the depreciation rate is 4.0 percent per year, and the capital-output ratio is 4.5. Suppose that the production function is Cobb-Douglas and that Winknam has been in a steady state.
a. In the initial steady state, what is the savings rate ()(s)?
b. In the initial steady state, what is the marginal product of capital (MPK)?
c. Suppose that public policy alters the saving rate so that the economy reaches the Golden Rule level of capital. What will the marginal product of capital be at the Golden Rule steady state ((MPKgold)?
d. What will the capital-output ratio be at the Golden Rule steady state (K/Ygold)?
e. What must the saving rate be to reach the Golden Rule steady state ()(sgold)?
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