Consider two economies: A and B. Both have identical parameters a =1/3,s =.2, L =30, and...

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Economics

Consider two economies: A and B. Both have identical parametersa =1/3,s =.2, L =30, and A =1. However, Economy A has depreciationrate d = 0.03 while Economy B has d = 0.10. Both economies startwith K₀ = 10.
Which economy is richer in year 0 (calculate GDP per capita foreach country).
Which economy has higher consumption per person in year 0(calculate C per capita).
After 50 years, which economy is richer in year 0 (calculateGDP per capita for each country).
After 250 years, which economy is richer in year 0 (calculateGDP per capita for each country).
In light of your findings, does it matter â€“ in the long run â€“how quickly the capital stock depreciates in an economy.

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4.1 Ratings (484 Votes)

Cobb Douglas production function will be YAKaL1a1K13L23K13L23 1 GDP per worker yYLk13 where k is capital per worker Country A capital per worker103013 Country B capital per worker103013 Country A gdp per worker1313 Country B gdp per worker1313 So both countries are equally rich as both have same gdp per worker 2C country See Answer

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