The technocrats, the econometricians and the engineers in Thriftland have determinedthat the country's production function is given by:

Y = 2000K^0.25L^0.75

The depreciation rate is 4 per cent of per capita capital stock ( = 0.04) and the countryhas been growing at a healthy six percent per annum. There is no labor efficiency growth.It is also known that Thriftland asa whole saves 30 percent of its income. The country is in a steady state: its entiresavings are currently used for depreciation purposes only.

(a) Is this country saving "too much?"

(b) What is the current per capita consumption (i.e., consumption per worker) ofthis country?

(c) How can the government attempt to maximize per capita consumption of thiscountry? What should be the "Golden Rule" target savings rate?

(d) If this target savings rate is achieved, what would be the value of per capitaconsumption in this country?

(e) At Golden Rule steady state, is GDP higher or lower than before?

(f) Draw a graph to explain (a) through (e).