The Cobb–Douglas production function and the steady state. This problem is based on the material in the chapter appendix. Suppose that the economy’s production function is given by Y = Kα N1−α

and assume that α = 1/3.

a. Is this production function characterised by constant returns to scale? Explain.

b. Are there decreasing returns to capital?

c. Are there decreasing returns to labour?

d. Transform the production function into a relation between output per worker and capital per worker.

e. For a given saving rate, s, and depreciation rate, δ, give an expression for capital per worker in the steady state.

f. Give an expression for output per worker in the steady state.

g. Solve for the steady-state level of output per worker when s = 0.32 and δ = 0.08.

h. Suppose that the depreciation rate remains constant at

δ = 0.08, while the saving rate is reduced by half, to s = 0.16. What is the new steady-state output per worker?