Properties

Looking at the Steady State

Golden Rule level of k:

A change in the discount rate:

\(\frac{\dot c}{c} = \frac{f'(k) - \rho - \theta g}{\theta}\)
What happens to the graph? You need f'(k) to fall to keep consumption change equal to zero so the line moves to the right as k increases (decreasing slope)
SEE GRAPH IN NOTES
*NB: When moving in the short-run, the only variable that changes quickly is consumption (c) so this will absorb most of the shock (k takes time to build up)

Introducing the government

SEE GRAPH IN NOTES