Consider an economy that is described by the Solow growth model, with the Cobb-Douglas production function, Y=k^ L^(1-) . There is no population growth or technological progress. The savings rate in this economy is equal to s = 0.1, the capital depreciation rate is equal to = 0.15, and = 1 4

(a) What is the fraction of income that is paid to the workers, what what is the fraction of

income that is paid to the capital owners?

b) Find the steady state level of capital per worker, income per worker and consumption per

worker.

c) Find the savings rate s1 that maximizes the steady state level of output per worker. Find

the savings rate s2 that maximizes the steady state level of consumption per worker. What

are the corresponding levels of output and consumption per worker in both cases?