3, 3, 3:

Use the following information to answer parts 3b, 3c, and 3d:

Suppose number of young people are increasing at gross rate

. Young people are endowed with

coconuts and old people are endowed with no coconuts. Agents can accumulate capital which is used to produce consumption goods in the subsequent period. The production technology()

displays diminishing marginal product of capital. The initial old are endowed withKo

units of capital.

b) Write down and explain the feasibility constraint

c) Assume the economy is in steady state. Explain how the golden rule bundle is determined. In particular, make sure to explain how capital is chosen

d) Suppose the population growth rate increases to

. What happens to the golden rule level of capital and why?