MGEB06H3 Lecture Notes - Lecture 1: Autarky, Production Function
5 Oct 2015
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Question 1 (chapter 8, an old exam question) Suppose the closed economy of the galapagos islands has an aggregate production function given by. , where y, k, l & e have their usual interpretation (as per our textbook lecture notes, etc. ). Suppose capital depreciates at a rate of 10% per year due to the humid climate and the population is growing by 1. 5% per year. Also, the efficiency of labour is rising by 2% per year and the marginal propensity to save is 20%. Hint: keep your calculations to at least three decimal places. Solve for the steady state level of capital, saving & consumption (all in per effective worker terms). The islands" chief economist dr. melonhead has proposed increasing the population growth rate in order to increase the growth rate of income and consumption per worker in steady state. Using economics from this course to explain if this proposal is reasonable.
