The highest steady state level of consumption occurs if workers save half of their income each period (i.e. s=0.5). Let us check this. Consider a simplified version of the Solow Growth Model. Assume per capita output is given by q=k^(alpha). Assume depreciation, δ, is 10 percent (i.e. δ = 0.1) and alpha is 0.5.
a) What is consumption per capita in the steady state if s=0.25?
b) What is consumption per capita in the steady state if s=0.75?
c) What is consumption per capita in the steady state if s=0.5?
d) What savings level gives the highest level of steady state consumption?
s=0.25? s=0.75? s=0.5?