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Let's assume that the economy of Indicus follow Solow model. Suppose that the production function of Indicus is a. Show the production function can be
Let's assume that the economy of Indicus follow Solow model. Suppose that the production function of Indicus is a. Show the production function can be expressed as b. Express the steady-state values of output and capita i.e., and , in terms of , where s is savings rate, n is population growth rate and is depreciation rate of capital. c. Now assume that and . Calculate the values of , and for different given values of 0.04, 0.09, 0.16, 0.25, 0.36, and 0.49. Policy makers of Indicus know that the savings rate for which the consumption is maximised also maximises welfare. Find out the welfare maximising value of the savings rate. (Note is steady-state value of consumption per capita and )
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