Question

An economy is characterized by the Solow model, with the production function y = √k, where y is output per worker and k is capital per worker. The steady-state level of output per worker is $y^{ss}=A^{1/(1-\alpha)}(\frac{\gamma}{\delta})^{\alpha/(1-\alpha)}$ where Α, γ, δ and a denote productivity, share of output invested (in %), depreciation rate (in %) and capital's share in income (in fraction), respectively. Suppose that A = 1, k = 400, $\gamma$ = 50%, δ = 5% and $\alpha$= 1/2. Then the current output, using the above information, is

• A. above the steady-state level of output per worker.
• B. at the steady-state level of output per worker.
• C. below the steady-state level of output per worker.
• D. at the Golden Rule level.

Answer 1

Answer: (A)

above the steady-state level of output per worker.

Answer 2

The correct option is (A): above the steady-state level of output per worker.