If the production function is given by
,the savings rate,s,is 20 percent,the depreciation rate,
,is 10 percent,and
,the steady-state level of output is:
A)1.
B)4.
C)2.
D)8.
E)3.

Question

If the production function is given by 
,the savings rate,s,is 20 percent,the depreciation rate, 
,is 10 percent,and 
,the steady-state level of output is:
A)1. 
B)4. 
C)2. 
D)8. 
E)3.

Quizplus · Accepted Answer

The steady-state level of output is given by: 
y* = (s/((n+δ)))^(1/(1-α))
where s is the savings rate, n is the population growth rate, δ is the depreciation rate, and α is the output elasticity of capital (based on the Cobb-Douglas production function).
Plugging in the given values, we get:
y* = (0.2/((0+0.1)))^(1/(1-0.5)) = 2
Therefore, the steady-state level of output is 2.

If the Production Function Is Given by