Consider the following economy, where output per effective worker is y=k1/3, = 0.21 and s= 0.30. Population

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Question:

Consider the following economy, where output per effective worker is y=k1/3, δ= 0.21 and s= 0.30. Population growth n= 0 initially.

(a) Compute SS capital per effective worker k^*, consumption per effective worker c^* and investment per effective worker i^*. Show these variables graphically.

(b) What are the implied golden rule capital, investment and consumption ? How does consumption here compare to consumption at the SS that we found before? What should happen to s to achievethe golden rule? Show graphically.

c) Now assume n= 0.2. Compute SS capital per effective worker k^*, consumption per effective worker c^*and investment per effective worker i*. Show these variables graphically.

d) What are the implied golden rule capital, investment and consumption? How does consumption here compare to consumption at the SS that we found before? What should happen to s to achievethe golden rule? Show graphically.