Consider a country with production function unction  ? = 5? 1/2, where y is the output per worker and k is capital per worker. Suppose the investment in capital occurs at a rate of 35% of income per worker every period, the depreciation rate is 1.5% and the population growth rate is 2%. Use excel to plot the production function, investment line and capital depletion line with k on the x-axis (use the attached spreadsheet to draw your graphs). a. What is the steady state level of y and k. b. Suppose TFP increases by 20%. What happens to the steady state y and k? c. Suppose the investment rate increases to 40%. What happens to the steady state y and k?

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Public Saving

Public saving deals with the amount which has been in excess after meeting all the obligatory expenses and investment of the government. Taxes are collected by the government to meet its day-to-day expenditures. The obligatory expenses include all those expenses which are mandatory for the government. It cannot be avoided as it is inevitable.