Macro Module 4 Solow growth model depreciation rate practice exam questions

Question 4.1: Depreciation rate

An economy follows a Solow growth model with no technological progress. In equilibrium

s = savings rate = 26.95%
y* = steady state income per worker = 189 units per worker per annum
k* = steady state capital per worker = 849 units per worker
n = population growth rate = 1.87% per annum

What is the annual depreciation rate of capital in the steady state?

A.    13.94%
B.    14.40%
C.    14.86%
D.    15.32%
E.    15.78%

Answer 4.1: steady state growth rate of capital per worker is zero, so s × (y/k) – sδ – n = 0 ➾

26.95% × (189 / 849) – 26.95% × δ – 1.87% = 0
δ = (0.2695 × (189 / 849) – 0.0187) / 0.2695 = 15.32%