Question

A country’s economic growth is given by the following equation: Y=√K and the country invests 20%...

A country’s economic growth is given by the following equation: Y=√K and the country invests 20% to making investment goods. Suddenly, through some invention, the country’s new production function becomes Y=3√K.

A)If depreciation is 6%, what is the country’s steady-state level of capital, output, and consumption?

B) Explain the concept of the golden rule of capital accumulation. Are real-world countries generally near/above/below this level? Why do you think it is the case?

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