Calculation of Decreasing Return to Scale Assignment - 16

Calculation of Decreasing Return to Scale - grant ExampleAssume that K=5 and L=4, therefore, F (K, L) =K+L=5+ (4)=21. Supposing that K is increased by one unit and L is reduced by 1 unit, such that the new-sprung(prenominal) K=6 and the new L=3. The new output will be F (K, L) =K+L=6+ (3)= 15 units. The rate of growth increases upward starting from point M up to a stable state point b where it remains constant and starts declining slowly towards the Right (Jones, pp.165).c). If A grew at a constant rate, GDP will consequently grow because as one of the comment is increased, GDP increases.d). Consumption reduces savings and investment, therefore, if TFP increases economy will grow.5). a). If investment rates double, GDP per capital would besides double because investment has a proportional impact on GDP per capita. 6). a).At steady state, capital sprout and depreciation are offset. Dk=0i = sy = s f (k)Where i=investment, and =depreciation (Jones, pp.175-180)Dk =s* f (k) dkAt ste ady state=2648billions-8%2648billionThe steady state capital stock for the economy=$2436.16b). 2648billions-20%2648billion=$2118.4c). Dk =s* f (k) dk