The government allows households to save taxfree
for retirement through IRAs and 401(k)
plans. Suppose that these plans increase the national
saving rate. Use the AK growth model to
answer the following questions:
a. What effect would these plans have on the
growth rate of the standard of living?
b. Suppose that these plans also reduce government
revenue and government saving. How
would this assumption affect your answer to
part (a)?