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In a country called Nubaria, the capital share of GDP is 40 percent; the average growth...

In a country called Nubaria, the capital share of GDP is 40 percent; the average growth in output is 4 percent per year; the depreciation rate is 5 percent per year; and the capital-output ratio is 2.5. Suppose the production function is Cobb-Douglas and Nubaria is in a steady state.

What is the saving rate in the initial steady state?

What is the marginal product of capital in the initial steady state? What is the economic interpretation of this number?

What is the general definition of the ”Golden Rule” steady state? Is this particular economy at that point? Find out by computing the marginal product of capital at the Golden Rule steady state, compare, and explain!

Compute the capital-output ratio and the saving rate required to get to the Golden Rule point. Are they higher, lower or equal to those from before? Why?

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