Problem 3 In class we argued that if people could accumulate human as well as physical capital, the production function would look like the \"AK\" production function. u 95 S 0 (a) If the production function is AK and the savings rate is constant at rate and the rates of depreciation and population growth are 6 and n respectively, what would the growth rate of the economy be? 0 (b) What would be the macroeconomic consequences of increasing the savings rate in this economy? Explain using the model and intuitively. 0 (c) What would be the consequences of an increase in fertility in this economy? Are these consequences good or bad? Is this answer unambiguous? 0 (d) How are human and physical capital different from one another in the way they evolve from period to period? 0 (e) Does human capital have an upper limit? If it does, what is the resulting production function when this is reached and the growth rate of the economy? If it doesn't have a limit, what is the resulting growth rate of output as it increases? 0 (f) Assume country A's economic growth can be modelled by a neoclassical growth model (i.e., all the neoclassical assumptions hold). Country A' s government is looking to grow the economy. They claim that they can make it grow forever by accumulating both human and physical capital at the same time as this combination will allow them to avoid diminishing returns. Is country A' s government correct? If so, why? If not, what is a better alternative? Make sure to reference the Neoclassical assumptions to answer this question. Problem 4