Answer Happy

Suppose the production function is zF(K, N) = 2KºNl-a, a € (0,1). Assume that the amount of labor that enters production is the same as the population size, and the population stays constant, and the technology level z stays constant. The depreciation rate for capital is 8. Saving rate is exogenous and given by s. (a) Write out the law of motion for K. (5 points) (b) Find the steady state of K. Show that the steady state value is increasing in s. (10 points) (c) Suppose that the economy is at its steady state level at period t = 0. At the beginning of ( period t = 1, there is an earthquake, which destroys 50% of the capital. Plot how capital changes from period t = 0. (10 points) (d) Suppose after the earthquake, the government also implements a change of the saving rate from s to a higher level š at the beginning of period t = 1 to make the recovery faster. Can this government policy achieve its goal? Explain your answer. (11 points)