Consider the following Cobb-Douglass production function?≡??(?,?):?=??1/3?2/3
where Y is output, the constant z measures productivity, K is physical capital, and N is labor. Suppose ?=2, ?=0.16, ?=0.06, and ?=0.02.
a. What are the steady-state (numerical) values of ?, ?, and ??
b. What is the golden-rule (numerical) level of capital per worker?
c. If the government wants to achieve the golden rule level of k, should savings increase, decrease or remain unchanged? Solve for/obtain its (numerical) value. Explain briefly.
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