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Suppose there is an economy in which the production function is given by Y= F(K, L) = 5K 1/2 L 1/2 In this economy, people

Suppose there is an economy in which the production function is given by

Y= F(K, L) = 5K1/2L1/2

In this economy, people generally save 15 percent of their income, and that 10 percent of the capital stock depreciates per year. We also observe that the economy has 25 units of capital per worker.

a. What will the change of the capital stock per worker?

b. How do we solve for the economy's steady-state value of capital stock per worker?

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