Let a simple production function and budget constraint be given by the following: X = KN M = 4$ : w = 1 $ /N : pK = 1 $ /K

16. Write out the solution for the two-period model in terms of the Cobb-Douglas Demand System. What role does the -parameter play as regards end-of-period wealth?

17. Write out the solution to the infinite horizons model.

18. Arrange the accumulated capital equation to solve for the Cambridge equation. Be sure to identify the Saving-side of the relation and the Investment-side of the relation. It = Kt+1 - K t + Kt

19. Sketch out the above investment relation in terms of the rectangular schematic diagram we did in class.

20. Substitute the Saving-side of the Cambridge equation for Kt+1 and solve for the level of investment written as a function of v, , and .

21. Knowing that Kt is equal to (i) X /, (ii) Z /v , and (iii) R /r, write out current investment levels as (i) a share of total income, (ii) a share of total gross profits, and (iii) a share of net profits. Identify the common relation in the numerator of each share. What are the conditions for this to converge with the neoclassical constant saving rate model?