Consider the Ramsey model max Illo , 1 {cumin-:0 g g(ct) ( ) subject to kt+1 = I]: Gt: (2) y: = Ah??- (3) The consumer maximises lifetime utility under a feasibility con- straint, given an initial value of capital k0. In each period t. the consumer has a stock of capital kt, must decide the level of consumption ct, and accumulates capital kt\" for the following period. Condition kt+1 2 0 is captured by the function Cmazuct) = Ak? (4) Condition kt\" = 1:; is captured by function 60!) = Arc: kt. (5) The key steady state of the model is given by [1633. 633] = [(Aa, 50955)]- (5) The policy functions for consumption and next period capital are em = (1 mama (7) k?+1(kt) = WM?- (3) It holds that A > 0. [3 E (0,1) and a E (0, 1). Figure 1 shows the setting of the model graphically. You can replicate this gure in your answer sheet and use it if it helps you with the questions. c (consumption) k (capital)