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capital and labor are paid for their marginal products. In addition, suppose that all capital income is saved and all labor income is consumed. Thus

capital and labor are paid for their marginal products. In addition, suppose that all capital income is saved and all labor income is consumed. Thus

(a) Show that this economy converges to a balanced growth path.

(b) Is k on the balanced growth path greater than, less than, or equal to the golden-rule level of k? What is the intuition for this result?
 

K = [OF(K,AL)/OK]K-SK.

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