An economy has the Cobb-Douglas Production Function: It has a savings rate of 60%, the population grows at 2% per year, , the annual depreciation rate is 5% and the annual rate of growth of the efficiency of labor is 1%. Find steady-state levels of capital, output, and consumption per efficiency unit. Now re-do for a savings rate of 50%. Compare the new steady-state levels of output, capital, and consumption per efficiency unit to the old. What is unusual about your results? In the initial situation, in what sense was this economy inefficient. Explain.

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ANSWER Therefore there are not sufficient resources to ensure that all aspects of an economy functio... View the full answer