Suppose that the country has the usual Cobb-Douglas production function with a = 1/3.

Suppose that A =4, s = 0.24, d = 0.06, L = 50.

a.) Suppose that at the current moment, the country's capital stock is 1350. Find its current output and the capital stock for the next year. (Hint: remember the formula for capital in period t+1 as a function of capital in period t.)

b.) Is the country above or below its steady state? What is your prediction for its economic growth over the next few years?

c.) Suppose that our economy has converged to the steady state. After a while, the government decided to implement a policy that encourages saving and as a result the savings rate goes to $s=0.30$. How will the steady state change? How will the economy behave in the short and in the long run?