Question 2. Suppose one production function is specied as below. I y = f(l() = 216\"\"; here y is output per capita; k is capital stock per capita. Use this production function to nish the following questions. (1) If we assume capital depreciation ratio (6) is 0.25 and saving rate (.9) is 50 percent or 0.5. Then, what is steady-state capital stock per capita (k *) and steady state output per capita (y *)? Here we do not consider population growth rate and technological progress. : recall denition of a and how capital stock change at a steady state. (2) Now consider population rate is 4 percent (n = 0.04) in this country and saving rate is 58 percent (5 = 0.58). Then, how much will be steady state capital stock (16\") and steady state output per capita (y *)? How the two values (k* and 32*) change compared with part ( l) and why? : remember we need to consider the impact of population growth rate (n) to capital stock. So the outow of capital stock will be faster than the previous scenario (no population growth rate). Also, the saving rate is different in this case. (3) Suppose, population growth rate in this country increases to 5 percent (n = 0.05) now. To maintain steady state capital stock (k*) and steady state output (y*) at the same level as above, the country is trying to increase saving rate (3). Then what is the new saving rate should be to keep k* and y* at the same level. : a higher population growth rate (11) would lead to a faster outow of capital stock. To keep steady state capital stock (k*) and steady state output (y*) at the same level, we need a higher saving rate (a higher inow of capital) to offset the impact of higher population growth rate. (4) How much is steady-state consumption per capita (0) when saving rate is 0.58 as in part (2)? Then how much will be consumption per capita when saving rate increases to 0.6 in part (3)? : You need the parity between consumption, saving and national output at per capita levels. Also be careful, you have different values of stead-state output with different saving rates