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Question75 This question aims to explore some of the points discussed about the Solow-Swan model. Consider an economy with the general Cobb-Douglas production function:Y = A * Kα * L(1-α)The equation describing capital dynamics is:[math]Where d is a constant parameter that captures the depreciation rate. Investment follows a behavioural equation as discussed in class, ie, a constant 's' fraction of output is invested in every period.Answer the following questions assuming that labour grows at the rate n = 0 and adopting the assumptions made in lecture.Assume: s = 0.60, d = 0.10, α = 0.5, L= 1and A= 1. More information is required to compute the interest rate in equilibrium The level of the interest rate in steady state is 40.82% The level of the interest rate in steady state is 18% The level of the interest rate in steady state is 8.33% The level of the interest rate in steady state is 20.41% ResetMaximum marks: 2 Flag question undefined

Options
A.More information is required to compute the interest rate in equilibrium
B.The level of the interest rate in steady state is 40.82%
C.The level of the interest rate in steady state is 18%
D.The level of the interest rate in steady state is 8.33%
E.The level of the interest rate in steady state is 20.41%
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To tackle this question, I will first restate the setup and the options to ensure clarity, then I’ll walk through each choice. Question setup recap: - Production: Y = A * K^α * L^(1-α) with A = 1, α = 0.5, L = 1, so Y = K^0.5. - Capital dynamics: ΔK = sY − dK, since the population growth n = 0 and depreciation rate d = 0.10. - Investment behavior: s = 0.60, so I = sY = 0.60 * Y. - Steady state condition: ΔK = 0, hence sY = dK. Step-by-step analysis of each option: Option 1: More information is required to compute the interest rate in equilibrium - This statement would be true in an incomplete model where key parameters or variables needed to determine r are missing (for example, if n or L or Y were ......Login to view full explanation

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