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Production Function: Yt = 10Kt^0.4 Lt^0.6 Consumption Function: Ct = 0.7Yt Depreciation rate: 10% (i.e. δ=...

Production Function: Yt = 10Kt^0.4 Lt^0.6 Consumption Function: Ct = 0.7Yt Depreciation rate: 10% (i.e. δ= 0.1) Population growth rate: 3% (i.e. n= 0.03) With this production function, it can be shown that MPK= 4Kt^-0.6Lt^0.6 = 4kt^-0.6 and MPL= 6Kt^0.4 Lt^-0.4= 7k^t0.4

Suppose economy is in year 2010 and policy makers decided to adjust their policy to achieve the Golden Rule level of consumption. Graphically show what happens to per capita income (yt), consumption (ct), and investment (it) over time during the transition to the Golden Rule. (Hint: you should show how these variables will be affected at the time of policy and over time in a diagram similar to the following diagram)

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