Purchase Solution

Steady-state interest rates

Not what you're looking for?

Ask Custom Question

Now we will solve for the steady state in a calibration of the US economy in 2000. In
this problem, you will assume that the rate of growth of the work force is n = 0.017 and
there is no exogenous technological progress. The aggregate production function for the
US economy in 2000 is Y = (11.5)K 1/3 L 2/3 . The units are billions of 1996 dollars. A
plausible value for the depreciation of the capital stock is δ= 0.036, and a good value for
the national savings rate is σ= 0.16.

6. Use the formula r =f'(k) to calculate the steady-state rentals rate. Explain why
the real interest rate is r-n-δ. (Hint: if you give up a unit of consumption,
you can buy a unit of capital. That capital will yield f'(k) units of output next
year, but a fraction δ is used up in production and another fraction n is needed
for new workers.)

7. Is the US economy saving at the golden rule? What is the golden rule savings rate
for our economy?

Attachments
Purchase this Solution
Solution Summary

Steady-state interest rates are assessed.

Purchase this Solution
Free BrainMass Quizzes
Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

View More Free Quizzes
Related BrainMass Solutions

  • Measuring Inflation - Balanced Budget

    At the steady state value of b, we find that bt = bt-1 (debt is not changing).

  • Finance Problems

    The expected value is given as Sum(Probability X Value) Steady and weak is given as 20% each, so the remaining 60% will be strong State of Economy Sales Probability Expected Outcome Strong $800,000 .60 $160,000 Steady 500,000 .20 250,000

  • Steady State matrix: makrte share for online degree

    The transfer rates for those leaving West State were 5% to EMAU, 10% each to River Valley and State Tech, and 20% to "other."

  • GDP and unemployment

    In other words sometimes it's best to let the interest rate fluctuate wildly to keep gdp steady (with low inflation and unemployment) and other times it is best to keep the interest rate close to a set level to keep gdp steady (with low inflation and

  • Neoclassical Model & Growth Accounting Equation

    steady state level of k and y (2) A decrease in n decreases the steady state rate of growth of aggregate output.

  • 1. The Hartnett Corporation manufactures baseballs bats with

    What if interest rates on the 10% loan go up to 15% in the second year and 18% in the third year? What would be the total interest cost compared to the 12%, three year loan?

  • Calculating the value of a bond

    What would be the value of the bonds three years after issue in each scenario above, assuming that interest rates stayed steady at either 7 percent or 13 percent?

  • The monetarist program

    C) very high interest rates. D) all of the above. E) none of the above. Monetarism: "Money matters" - arguments against government intervention.

  • Intermediate Macroeconomics

    What steady-state value of the capital-labor ratio is needed to double the steady-state value of output per capita?

View More Related Solutions