Y6

Suppose that the production function for output in an economy is given by = ^0.75^0.25 The number of workers, N, is constant. The saving rate is s, and the depreciation rate of physical capital is .

f) If s = 0.45, compute the steady state level of Y/N, K/N and C/N.

g) Households in Australia have increased their savings since the COVID-19 pandemic to hedge against rising economic uncertainty. Assume that saving becomes the new norm and households permanently increase their saving rate. Use the growth model to analyse the impact of this increase in the saving rate on the rate of economic growth, and the level of output per worker.