1. Suppose an economy begins in steady-state and is characterized by a 20% saving rate (use as
0.2 ) and an 8% depreciation rate (use as 0.08 ). The economy is characterized by the following
production function: Y=F(K,L)=KInL2vs. a. Calculate the production function per worker.
(3POINTS) b. Provide the steady state condition. In your own words, explain what this condition
requires. (3POINTS) c. Calculate the steady state level of output per worker (y) and level of capital
per worker (k). Show your work. (8POINTS) d. Using your work from c.), rewrite the consumption
per capita function as a function of and s and calculate the golden rule saving rate. Recall that
golden rule saving is the rate of saving that maximizes consumption per worker in steady state.
Show your work. (10POINTS).
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1 Suppose an economy begins in steadystate and is characte.pdf
1. 1. Suppose an economy begins in steady-state and is characterized by a 20% saving rate (use as
0.2 ) and an 8% depreciation rate (use as 0.08 ). The economy is characterized by the following
production function: Y=F(K,L)=KInL2vs. a. Calculate the production function per worker.
(3POINTS) b. Provide the steady state condition. In your own words, explain what this condition
requires. (3POINTS) c. Calculate the steady state level of output per worker (y) and level of capital
per worker (k). Show your work. (8POINTS) d. Using your work from c.), rewrite the consumption
per capita function as a function of and s and calculate the golden rule saving rate. Recall that
golden rule saving is the rate of saving that maximizes consumption per worker in steady state.
Show your work. (10POINTS)
