Question

2. Assume that the information below describes the economy of Country A. First, assume that Country A has a production function equal to Y = F(K,L) = VK.L (where Y = output, K = capital, L = Labor) Second, assume that the economy of Country A conforms to the assumptions and conditions discussed in Chapter 8, where the population growth and the depreciation of capital occur at the rates provided below, and this economy's savings rate is equal to the value below as well. s= 0.25 s=savings rate 8= 0.1 8 = depreciation rate n= population growth rate n = 0.1 (10 pts) b. Explain the significance of the Golden Rule steady-state and then determine whether this economy is operating at its Golden Rule steady-state level of k. If this country is not operating at its Golden Rule steady state level of k, then for full credit, calculate Country A's Golden Rule steady state level of k and the savings rate (s) necessary to achieve that Golden Rule steady state level of k. If you cannot calculate these values, then for partial credit, explain what must happen to k and s in order for Country A to achieve its Golden Rule steady state level of k. Lastly, explain how consumption and investment per worker will change during this economy's transition to the Golden Rule steady-state.

Please use the equations provided to solve for all parts of question B. Please be detailed, and show all steps with the formulas and why they occur. I need to understand and see the work with the solutions for each part so that I can understand how you got the solution. Use the math to explain what is happening showing work with the equations, and why. Thank you so much! Correct answers will get a thumbs up! You must show why the solutions occur based on the math!!!

Answer 1

golden- level state ie that lle ady state level steady state that the consumphon maximised. 본론 sy-i Gonts) kk. at steady state vex - (2+8) RX duet Cost 8) ich 0 U (mts) Wet 2 (nts) & Ý (n+8) 2 4x1042) 6.25 0016 R* kt 105625 * 6.25. S frem * for bet les ean-M (M+S) k* Reikia (n+8) ks yk &

[(001) + (0.1)) 6.25 so (012) 56125) (0.2) (205) 0.5 saving rate rate should increase from 0.25 to 0.5 to reach golden- olden- level- 0.75) (1025) Org 375 et C* 0.3125 Now 2.5 yog 10875 vet (0.75) (9.5) 0.625. Co Increases from state both, * 4. Et steady Istate I to the golden