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General Solow Model Supose initially the economy stays at the steady state k*, y*, i*, c*....

General Solow Model Supose initially the economy stays at the steady state k*, y*, i*, c*. At time t0, an imminent trade war makes people expect a higher inflation rate in the future. Higher inflation would benefit the borrower while hurt the lender. Therefore, rational people has less incentive to save. As a result, the saving rate s decreased to s'

(f) Explain what is the golden saving rate, sgold in one sentence. Suppose s > s' > sgold, which of the two time path for ct you draw above is more likely to happen. What if s > sgold > s' and sgold > s > s' ?

(g) (Open Question) Do you think the saving rate in US is above or below the sgold? What is the reason causing the saving rate at such level? Could you make a policy proposal so that people could achieve a higher well-being by using General Solow Model to justify your argument.

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