Now assume the government increases spending reducing

Reference no: EM1335050

Production function : Solution set

Assume an economy has the following production function: Y=F(K,L)=K0.4L0.6

a. State the per-worker production function.

b. If the savings rate is 0.2 and the depreciation rate is 0.05, calculate the steady-state capital stock per worker, output per worker, and consumption per worker.

c. Now suppose the government increases spending, reducing the country's savings rate to 0.1. Redo the calculations in (b) based upon this change. What is the effect on the government spending on the economy.

Reference no: EM1335050

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