Question

Y = F(K, L) = K1/2L1/2. Suppose that both countries start off with a capital stock per worker of 2. What are the levels of income per worker and consumption per worker? Round your answers to two decimal places.

Answer 1

Answer:

Income per worker = 1.41 ; If rate of savings is 20% or 0.20 - Savings = 0.28

Explanation:

Y is output or income per worker, is given as a function of factors - Capital & Labour.

Y = F (K,L) = K^1/2.L^1/2

Given : 'Capital per worker' = 2

So, labour = 1 & capital = 2

Income [Y] per worker = (2)^1/2 . (1)^1/2

I.4 x 1

= 1.41

Savings [S] is a function of Income [Y]

S = f (Y)

S = s.f(Y) ; where s represents ratio / proportion of income saved.

Example : If 's' savings rate is 20% i.e 0.20

S = (0.20) (1.41)

= 0.28