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16. Suppose that the aggregate production function of an economy has the following form: Y = F(K, L) = 61(2L2 Also, suppose that the saving
16. Suppose that the aggregate production function of an economy has the following form: Y = F(K, L) = 61(\"2L\"2 Also, suppose that the saving rate in the economy is 0.1, the depreciation rate of capital is 0.3. The population size (labor force) is constant at the level L = 100. Answer the following questions: a) What is the steady state level of capital stock? (9 marks) b) Suppose that the economy experiences a permanent increase in the saving rate. What will happen to the new steady state level of capital stock? Please explain your answer with a diagram (6 marks)
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