Imagine an economy with a standard cobb douglas production function, population growth of 2%,1% total productivity growth, a savings ratio of 10% and a profit share of 20%. Assume that machines depreciate by 5% per annum. what are the steady state solution for:
a) level of GDP per effective worker?
b) growth of GDP per actual worker?
c) level of consumption per effective worker?
d) wages growth?
e) the user cost of capital? f) the real interest rate?
g) explain whether this economy is following the Golden rule.
Part 2: sn economy is experiencing low interest ratees and an output boom. Describe how it may self correct (that is move of its own accord to the equilibrium point). is there a potential role for government and/or central bank intervention?