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Suppose that the economy is summarized by the following: Production- Yt=10Kt^0.3Lt^0.7 Consumption- Ct= 0.8Yt Depreciation rate...

Suppose that the economy is summarized by the following:
Production- Yt=10Kt^0.3Lt^0.7

Consumption- Ct= 0.8Yt

Depreciation rate 10%

MPK= 3Kt^-0.7Lt ^0.7 or in capita terms MPK= 3kt ^-.7

  1. Find the per capita actual investment function and plot it on a graph with kt on the horizontal axis.
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Answer #1

The actual investment per capita is :

In this case, Therefore, c=0.8. Then the actual investment per capita is

The production function is

In per capita term

Then the actual investment in terms of per capita capital is

The figure below gives the actual investment.

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