Suppose two countries, A and B, with the same production function Y = K? L 1?? . The value of ? is 0.30, the growth rate of population is 2% and the depreciation rate is 5%.
a) Show that with price-taking firms the share of labor must be 1?? .
b) Compute the stock of capital, output and consumption per unit of labor in the steady state if the savings rates were 25% for country A and 35% for country B.
c) Compare both economies to the Golden Rule.