. Consider an economy in which the amount of investment is equal to the amount of saving (i.e., the economy is closed to international flows of capital). Any output that is not saved is consumed (all equivalently, C=Y-S; C=Y-I; c=y-s; c=y-i). The production function is yy = AAkkax and labor force grows at rate n while productivity (A) is constant. The "golden rule level of saving – investment " is the "optimal" saving – investment rate (YGG) that maximises consumption per worker (yy is the fraction of income that is invested – saved). Prove that marginal product of capital (MPK) equals (88 + nn) at the golden rule level of saving - investment (88 is depreciation rate). Show the golden rule level of saving - investment on a graph. On the same graph, show the case in which this economy is over saving - investing. (Hint: In this case, higher saving - investment does increase GDP per worker, but not consumption per worker.) |

. Consider an economy in which the amount of investment is equal to the amount of saving (i.e., the economy is closed to international flows of capital). Any output that is not saved is consumed (all equivalently, C=Y-S; C=Y-I; c=y-s; c=y-i). The production function is yy = AAkkax and labor force grows at rate n while productivity (A) is constant. The "golden rule level of saving – investment " is the "optimal" saving – investment rate (YGG) that maximises consumption per worker (yy is the fraction of income that is invested – saved). Prove that marginal product of capital (MPK) equals (88 + nn) at the golden rule level of saving - investment (88 is depreciation rate). Show the golden rule level of saving - investment on a graph. On the same graph, show the case in which this economy is over saving - investing. (Hint: In this case, higher saving - investment does increase GDP per worker, but not consumption per worker.) |

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter7: Production Economics

Section: Chapter Questions

Problem 3E

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