Suppose you have invented some strange mind-control device that allows you to change how much every one saves. You can't do anything else, except to manipulate their feelings about whether buffalo wings should be accompanied by ranch dressing.

The population growth rate is 0, labor is 1 and production is given by f(k) = k 0 .5. The capital per capita depreciates at rate 0.1

1. If you set the savings rate to 0 or to 1, what is the consumption per capita in the steady state?

2. Plot out consumption per capita if you set the savings rate to 0.1, 0.25, 0.5 , 0.75, 0.9. That is, calculate the steady state capital per capita for each of these savings rates, then compute the consumption and then put that on a graph. 1 What savings rate corresponds to the most consumption per capita?

3. Suppose the savings rate was 0.75 and capital per capita is in steady state. Then the savings rate goes to the golden rule level: what happens to consumption immediately, in the first period after the change. Is consumption in this first period higher or lower than its steady state?

4. Suppose the savings rate was 0.25 and capital per capita is in steady state. Then the savings rate goes to the golden rule level: what happens to consumption immediately, in the first period after the change. Is consumption in this first period higher or lower than its steady state?