You are given the following information about an economy.

Y = C + I

Y = F(K, L)

The aggregate production function for this economy exhibits constant returns to scale and the marginal products of labor and capital are both subject to diminishing returns.

s = saving rate (assume this is constant) per year

= depreciation rate (assume this is a constant) per year

y = Y/L

k = K/L

k* = steady state of capital per worker (K/L) and sf(k) < k. i.

What is sf(k)?

ii. What is k?

iii. Interpret the meaning of sf(k) < k?

iv. Graphically illustrate sf(k), k, and k*. Indicate on your graph where sf(k) < k.

v. Explain what happens in this economy when sf(k) < k.