We know that a country reaches a steady state when investment equals depreciation. This means Y=K
Consider an economy with the production function
Y=A√ K
Squaring both sides and solving for K yields
K=Y^2/A^2
Substituting K into the steady state equation gives
Y=Y^2/A^2
Solve this equation for Y. Divide both sides by Y and put everything on the other side to solve for Y. Once you do this, use this equation to answer the question about the economy in the steady state.
What will make a country richer in the long run?
i. Both changes will have the same impact on the steady state GDP.
ii. Doubling the saving rate
iii. Neither will make the country richer in the long run.
iv. Doubling total factor productivity