Determine the golden rule savings rate for the economy find

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Reference no: EM13454461

Assume an economy has a production function of:

Y = AK^.35L^.65 with: A = 1, K = 100 and L = 40. There is no labor force growth and technology remains constant.

(a) Find the level of Y for this economy. Find the levels of y and k.

(b) Assume that the capital stock in this economy depreciates at 10%/year and the savings rate out of GDP is 25%. What would be the steady state level of y, k, c and i?

(c) Find the golden rule savings rate for this economy. What would be the new level of steady state y, k, c and i if the economy moved to the golden rule savings rate? What would be the values for y, c, s, and k if the economy increased its savings rate by 5% above the golden rule savings rate?

Fill in as table and show calculations separately.

Steady State Golden Rule Steady State with Savings

Savings Rate Savings Rate Five Percent Over Golden Rule

Reference no: EM13454461

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