Suppose two countries, A and B, with the same production function Y = K? L1?? . 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.