Again consider the Solow model economic production function,
Y = A * K^a * L^(1-a)
Assume the following initial conditions:
A = 1.7
a = 0.48
K = 12
L = 112
Additionally, you know that depreciation rate is 23 % and the savings rate is 23 %.
What will be the total capital (K) at the end of the first period (beginning of second period)?
Production function is given by
Y = A * Ka * L(1-a)
in beginning period two we assume K to be K2
so K2= (1-d)K1+I ......eq 1
where d is the depreciation of capital and I is the investment
also we know that I=S =sY
so finding Y by putting the values available we have
Y = 1.7(12)0.481120.52 =1.7*3.29* 11.62= 65.04
so sY = 0.23*65.04 = 14.95
which is lso the investment
putting the values in equation 1
so K in the next year is 24.19
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