Question

A Solow Growth Model economy has a savings rate of 20 percent, a 5 percent rate of depreciation and a production function Y = K^1/2L^1/2. The economy currently has 100 workers and 400 units of capital. How much capital will the economy have one year from now?

Answer 1

$$Y=\sqrt K \sqrt L$$

$$L=100$$

$$Y=400$$

$$Y=200$$

After 1 year

$$400\times 1.05 \times 0.8=336$$