18. Suppose that we have an overlapping generation model and the utility is Ut=lnC₁t + BlnC2t+1, and the production function is F(K, Lt) = A K L-a. a) Find the appropriate first order conditions. b) Solve the worker's saving rate. c) Find the Golden rule level of capital stock. d) Compute the steady state saving that is required to maintain golden rule level of capital stock. e) Under what condition on the model parameters will the saving exceed the golden rule level.

18. Suppose that we have an overlapping generation model and the utility is Ut=lnC₁t + BlnC2t+1, and the production function is F(K, Lt) = A K L-a. a) Find the appropriate first order conditions. b) Solve the worker's saving rate. c) Find the Golden rule level of capital stock. d) Compute the steady state saving that is required to maintain golden rule level of capital stock. e) Under what condition on the model parameters will the saving exceed the golden rule level.

Microeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506893

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter14: Investment, The Capital Market, And The Wealth Of Nations

Section: Chapter Questions

Problem 3CQ

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