Suppose that an economy has the following production function: Y = F(K, LE) = K1/2(LE)1/2 Assume that the rate of deprec

[answerhappygod]

Suppose that an economy has the following production function: Y
= F(K, LE) = K1/2(LE)1/2 Assume that the rate of depreciation is 6
percent per year ( = .06), the rate of population growth is 2
percent per year (n = .02), the rate of labor efficiency growth is
2 percent per year (g=.02) and the saving rate is 60 percent (s =
0.6).
1.Graphically illustrate the steady state. Clearly label the
curves, and the steady state
values of k*, y*, c* and i*. If MPK=0.08, is the economy below,
above, or right at the
Golden Rule steady state? (18 points)