Question

In the Saul model, if the per capita production function is y = k^0.7, the savings rate is 0.2, and the depreciation rate (δ) is 0.1, then the steady-state level of capital per worker (k') equals:

A) 2.0
B) 1.0
C) 0.9
D) 0.7

Answer 1

In the Saul model, the steady-state level of capital per worker (k') can be calculated using the formula k' = ((s * y) - δ) / n. However, since the population growth rate is not provided in the question, we cannot determine the exact value of k'. Therefore, we cannot determine the correct option.

Step-by-step explanation:

In the Saul model, the steady-state level of capital per worker (k') can be calculated using the formula k' = ((s * y) - δ) / n, where s is the savings rate, y is the per capita production function, δ is the depreciation rate, and n is the population growth rate.

In this case, the savings rate (s) is 0.2, the per capita production function (y) is k^0.7, and the depreciation rate (δ) is 0.1.

So, substituting these values into the formula, we get k' = ((0.2 * k^0.7) - 0.1) / n.

Since the population growth rate (n) is not provided, we cannot calculate the exact value of k'. Therefore, we cannot determine which option (A, B, C, or D) is the correct answer.