Assume an economy has the following production function:
Y=K0.7L0.3
Y: output; K: capital stock and L: labor
1. Derive the per-worker production function (y).
2. Assume that each period the economy saves a fraction s of its output to make
investment in capital. Capital stock depreciates at the rate of . Population
grows at the rate of n. Derive the equation that describes the accumulation of
capital per worker (k).
3. If =14%, n=1% and the capital-output ratio is K/Y=2. Calculate the saving rate,
the steady state capital stock per worker, output per worker and consumption
per worker.