[Solow Model] A closed economy has the following Cobb-Douglas production function: Y= F(K, L) = K^(a)L^(1-a), where Yis output,K is capital,Lis the number of workers, andais a number between 0 and 1.Labor incomeis 2/3 of total income. Householdsspend70% of their income each year. The annual depreciation rate is 1.2%. Assume that both government spending and tax revenue equal 0. There is neither population growth, nor technological progress.

(a) If capital per worker was 1,000 last year

(a) How much is capital per worker this year?

(b) Will the marginal product of capital this year be greater than the marginal product of capital last year?

(b) Now assume that the economy has converged to its steady state.

(i) How much is capital per worker?

(ii) How many workers are there if (aggregate) consumptionis 70 million?

(iii) By how many percentage points should the government change the saving rate so that the economy may converge to the golden rule steady state (use a "+" for an increase and a "-" for a decrease)?

(iv) Will the change outlined in (iii) be well received by the current generation?