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A closed economy (NX = 0) without government (G = T = 0) has a production...

A closed economy (NX = 0) without government (G = T = 0) has a production function Y = K^1/4 ^L 3/4 . Capital depreciates at a rate of 3 percent per year. Workers spend 76 percent of their income each year. Investment adds up to the capital stock which is available for production next year. Assume that capital per worker is 5.0625 at the beginning of 2017 and the number of workers stays the same each year.

(a) Find output per worker, consumption per worker, investment per worker, and depreciation per worker in 2017. How much will capital per worker be at the beginning of 2018?

(b) Find the steady-state capital per worker, output per worker, consumption per worker, investment per worker, and depreciation per worker.

(c) Assume that the economy is at its steady state. (i) Find the marginal product of capital. (ii) If the government wishes to maximize consumption per worker in the (very) long run, should they increase or decrease the saving rate? Explain. (iii) Would the current generation approve of the change in the saving rate discussed in (ii)? Explain

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