Problem 2: The Golden Rule Consider the SGM studied in class. We found an explicit expression for its steady state sA k, = k* = (1) n+8 Let & = denote consumption per capita. As shown on the slides, the steady state level of c, call it c* = y*- i*, is given by - ») A () c" = (1 (2) n+8 Find an expression for the saving rate smax that maximizes c". This is often referred to as the golden rule saving rate. Plot c as a function of s. Can you provide a brief intuition for why it is bell-shaped? Namely, why at the beginning a higher saving rate increases c", but passed a certain threshold c starts to decline?

Problem 2: The Golden Rule Consider the SGM studied in class. We found an explicit expression for its steady state sA k, = k* = (1) n+8 Let & = denote consumption per capita. As shown on the slides, the steady state level of c, call it c* = y- i, is given by - ») A () c" = (1 (2) n+8 Find an expression for the saving rate smax that maximizes c". This is often referred to as the golden rule saving rate. Plot c as a function of s. Can you provide a brief intuition for why it is bell-shaped? Namely, why at the beginning a higher saving rate increases c", but passed a certain threshold c starts to decline?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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