Question 1

a. Given a saving rate of 4%, a depreciation rate of 1%, and a production function in which y = k0.5 where y is output per worker and k is capital per worker, calculate the steady state values for

i. capital,

ii. output,

iii. consumption, and

iv. Calculate the golden rule steady state level of capital

b. Assuming an economy is at steady state, with the use of an appropriate diagram with descriptions illustrate the impact of a reduction in the saving rate on capital per worker and output per worker.

c. In the context of the Solow model, illustrate with appropriate descriptions the impact of increased migrant workers on capital per worker and output per worker in an economy.