Q. Consider a Solow growth model with Cobb-Douglas construction, depreciation rate δ, savings rates, population growth rate n, also rate of technological progress equal to g. You can use your answers from
Question 2 to answer the following questions.
(a) Consider the following empirical observations for the U.S.: Capital stock is 2.5 times GDP Population growth is roughly 2% Depreciation accounts for 10% of GDP grows at a rate of 3% Owners capital share of output is roughly 30% is the US currently at the golden rule level of capital, based on these data?
(b) Based on these data, Illustrate what is the golden rule level of capital?
(c) Assume the U.S. government implements a policy that achieves the savings rate needed to achieve the golden rule level of capital. Using desire response illustrate how the following variables would change as the U.S. transitions to its new balanced growth path: capital, output, also consumption.