Calculation of Decreasing Return to Scale Assignment - 16

Calculation of Decreasing Return to Scale - Assignment 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, much(prenominal) that the new K=6 and the new L=3. The new output will be F (K, L) =K+L=6+ (3)= 15 units. The arrange 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 adjust (Jones, pp.165).c). If A grew at a constant rate, GDP will consequently grow because as one of the input is increased, GDP increases.d). Consumption reduces savings and investment, therefore, if TFP increases providence will grow.5). a). If investment rates double, GDP per bully would also double because investment has a proportional impact on GDP per capita. 6). a).At tight state, capital stock and depreciation are offset. Dk=0i = sy = s f (k)Where i=investment, and =depreciation (Jones, pp.175-180)Dk =s* f (k) dkAt steady state=2648billions-8%2648billionThe steady state capital stock for the economy=$2436.16b). 2648billions-20%2648billion=$2118.4c). Dk =s* f (k) dk