There are two countries: country A and country B. They have the same (constant returns to scale) production function and the same saving (s) and depreciation (6) rates. Both countries are in a long-run equilibrium (steady state). a) What can you tell about levels of output per worker (), capital per worker (*) and consump- tion per worker () in two countries? Show them on a graph (with capital per worker on the horizontal axis and output per worker on the vertical axis.) b) Now assume that, in country A, some of its constant population are working (N), and some are retired (L-N), while country B has all of its population working (N = L). In country A, assume each of the retired people is able to consume CR. Equation (11.4) in the textbook becomes: CR K* $$ (W) = 8 + (L-N) where f(-) is the production function and f = (*). Explain why there must be this extra term on the right-hand side. Why is it 0 for country B? c) Given that the extra term is a constant (independent of), show how the graphs you drew in part a) now differ between countries A and B (Hint: increase the intercept of the straight line). d) Which country has the lower and therefore? e) The government in country A decides to increase the retirement age. This will mean that (L-N) will get smaller (so that country A becomes more like country B). What will happen to and therefore and consumption per worker? Is everybody better off?