Saving rate be to achieve the golden rule level of capital

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Reference no: EM1322708

Q. Assume that a country's production function is Y = AK0.3L0.7. The ratio of capital to output is 3, the growth rate of output is 3 percent also the depreciation rate is 4 percent. Capital is paid its marginal product.

a. Illustrate what is the marginal product of capital in this situation? (Hint: The marginal product of capital may be computed using calculus by differentiating the production function also using the capital-output ratio or by using the fact that capital's share equals MPK multiplied by K divided by Y.)

b. If the economy is in a steady state, Illustrate what must be the saving rate? (Hint: The saving rate multiplied by Y must provide for gross growth of (^TM + n + g)K, where ^TM is the depreciation rate.)

c. If the economy decides to achieve the Golden Rule level of capital also actually reaches it, Illustrate what will be the marginal product of capital?

d. Illustrate what must the saving rate be to achieve the Golden Rule level of capital?

Reference no: EM1322708

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