Please don't use answers from previous post. They are all wrong. | Problem 2. The Golden Rule ( Consider an economy that behaves according to the Solow model with constant population and no technological progress. The aggregate production function in this economy is given by F(K,L) = KªL¹-a The depreciation rate is 0.1, and the capital share (a) is equal to 0.5. The initial population is L = 1. a. Using a spreadsheet, calculate steady-state consumption, C., and steady-state capital, K., for different saving rates. For instance, you may vary the savings rate from 0 to 1, in intervals of 0.05. Plot C, and K, as a function of s b. What is the savings rate and the associated K, that maximizes C, in your plot? Provide intuition for this result.
Please don't use answers from previous post. They are all wrong. | Problem 2. The Golden Rule ( Consider an economy that behaves according to the Solow model with constant population and no technological progress. The aggregate production function in this economy is given by F(K,L) = KªL¹-a The depreciation rate is 0.1, and the capital share (a) is equal to 0.5. The initial population is L = 1. a. Using a spreadsheet, calculate steady-state consumption, C., and steady-state capital, K., for different saving rates. For instance, you may vary the savings rate from 0 to 1, in intervals of 0.05. Plot C, and K, as a function of s b. What is the savings rate and the associated K, that maximizes C, in your plot? Provide intuition for this result.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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