Consider a Country operating according to the Solow model with production function: Y = K 1 2
Question:
Consider a Country operating according to the Solow model with production function: Y = K 1 2 ∗ L 1 2 . Assume that the saving rate is 0.3 ( 30 % ) , the depreciation rate of capital is 0.09 ( 9 % ) and the population growth rate is 0.01 ( 1 % ) . Recall that in the per worker production function y = k α , the M P K = α ∗ k α − 1 . Assume again that there is no technological progress. Assume that this Country is currently operating at the steady state obtained using the original information (i.e. saving rate equal to 0.3 , depreciation rate of capital equal to 0.09 and population growth rate equal to 0.01 ). Which of the following is true? (a) Current consumption is c = 1.1 , while consumption at the Golden Rule steady state would be c g o l d = 0.5 (b) Current consumption is c = 2.1 , while consumption at the Golden Rule steady state would be c g o l d = 2.5 (c) Current consumption is c = 1.1 , while consumption at the Golden Rule steady state would be c g o l d = 2.5 (d) Current consumption is c = 1.5 , while consumption at the Golden Rule steady state would be c g o l d = 3.5 (e) Current consumption is c = 3 , while consumption at the Golden Rule steady state would be c g o l d = 5
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