Question: Suppose that (K ) = a bK and C(I ) = I 2 /2. (a) What is the q = 0 locus? What is

Suppose that π(K ) = a − bK and C(I ) = αI 2

/2.

(a) What is the q = 0 locus? What is the long-run equilibrium value of K?

(b) What is the slope of the saddle path? (Hint: Use the approach in Section 2.6.)

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