Suppose that in Brazil the capital share of GDP is 0.4, the average growth in output is 0.04 per year, the depreciation rate is 0.03 per year, and the capitaloutput ratio is 3. Suppose that the production function is CobbDouglas and that Brazil has been in a steady state.

1. What must the saving rate be in the initial steady state?
2. What is the marginal product of capital in the initial steady state?
3. Suppose that public policy alters the saving rate so that the economy reaches the Golden Rule level of capital. What will the marginal product of capital be at the Golden Rule steady state? Compare the marginal product at the Golden Rule steady state to the marginal product in the initial steady state. Explain.
4. What will the capitaloutput ratio be at the Golden Rule steady state?
5. What must the saving rate be to reach the Golden Rule steady state?