Suppose in the Solow growth model that s=.25, n=.02, d=.08, and f(k)= K^3
A)Suppose that z=2. What is the steady state level of capital per worker and consumption per worker ?
B) Now, suppose that initially z=2 and the economy is in the steady state you calculated in part a. . Then suppose that z falls to 1.8 permanently. What is the new steady state? Determine capital per worker znd output per worker in each of the first 10 periods after z falls, and show this in a figure.
C) Now suppose alternatively that z=2 initially, the economy is in the steady state, and then z falls to 1.8, but now for only 10 periods. Then z=2 forever. Determine the path followed by capital per worker and output per worker in the first 10 periods after z falls. Again, show this in a figure.
D) What conclusions can you draw from your results in part a through c?