Suppose we are told the following information about the closed economy of Lower Canuckistan. There is no technological change or improvement. Capital depreciates at 8% per year and the population is growing at 2% per year. This economy saves 20% of all income.
Please keep all calculations to at least two decimal places.
Is this economy presently in steady state? Explain why/why not? Over time what will happen to capital and output per worker? Explain. Over time, in the very long-run, immediately following the initial LR equilibrium what happens to the level of aggregate output? (i.e. Does it go up, down or stay the same?) Explain.
