Consider the following numerical example using the Solow growth model.

Suppose that F(K, N) = K 1/3N 2/3 and d = 0.05, s = 0.2, n = 0.01, and z = 1. The unit period is one year.

1. Find k * the steady state per-capita capital stock.

2. Suppose that the economy is at its steady state in year 0. Let z increase from 1 to 1.1 at the end of year 0. Determine the aggregate quantities of the capital stock, consumption and output for years 1, 2 and 3 (i.e., K, C andY ). Summarize your results using a table.

3. Give the golden rule level of capital k ** . Find the highest level of consumption per capital c.