Suppose an economy is in its steady state with k' = 49.38. Imagine it has the following characteristics: Alpha: (r = 0.7 Savings Rate: S = 0.4 Population Growth Rate: n = 0.05 Depreciation Rate: 5 = 0.075 Level of Technology: Ag = 1.5 a) (4 Points) Calculate steady-state per-capita production and steady state per-capita consumption of this economy. b) (6 Points) Imagine you can change, from one period to another, (i) either the savings rate of (ii) the depreciation rate by one percent. Which is better for the consumption in the next period? To answer this, do the following: . Recall that we start in the steady state of k' = 186. 55 and that the values for cr, n, and A were given to you. Use this information and the law of motion of capital to calculate the next period's capital stock: k,+1 = k' + SAK'"- (n + 8)k' o That is, you should have two different values for k,+ 1: K = 186.55 + 0.4 . 1.5 . (186.5507) - (0. 05 + 0. 065) . 186.55 o K,+1 = 186.55 + 0.41 . 1.5 . (186.5507) - (0.05 + 0.075) . 186.55 . Calculate two values for y,+ 1 = 1.5 . k,. ,, one for each of the values of k, , , obtained above. For which value ofk,. ; above will y, . ; be higher? Which policy would you recommend (increasing the savings rate or decreasing the depreciation rate?)