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In the Solow model, suppose the per worker production function is y=2k ⁰.⁵. Suppose s=0.09,n=0.03, and d=0.06. Calculate the steady-state equilibrium capital-labor ratio. k=4.

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Final answer:

The steady-state equilibrium capital-labor ratio k* in the Solow model, given the savings rate (s), the population growth rate (n), and the depreciation rate (d), is calculated using the specific parameters and the production function y=2k^0.5.

Step-by-step explanation:

The question revolves around the calculation of the steady-state equilibrium capital-labor ratio (k*) in the Solow growth model, with a given per worker production function y=2k0.5. The Solow model incorporates the savings rate (s), population growth rate (n), and the depreciation rate (d) to determine long-term economic growth. To calculate the steady-state value of k, you use the equation k* = (s / (n + d))^1/(1-α), where α is the production function's exponent on capital. In this scenario, the production function is Cobb-Douglas with α = 0.5, s=0.09, n=0.03, and d=0.06. The steady-state capital-labor ratio can be calculated as follows:

k* = (0.09 / (0.03 + 0.06))^2 = (0.09 / 0.09)^2 = 12 = 1.

In this steady-state, each worker is paired with a capital stock of 1.

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