1. [15 participation points] Plot the Figure that summarizes the Solow Growth model Figure when v = 0.3,6 = 0.02,Y = K% WWhat is the steady state level of output, capital, and consumption. State the equilibrium condition. Here are the steps you need to follow to plot the Solow growth model on Excel: 1. First, label column A \"Capital K\" and put a 1 in cell A2. Second, you can create an increasing series by inputting the formula \"=A2+1\" in cell A3 and copying and pasting that formula into cells A4 to, say, A500. 2. In column B, create a series for Output definedasY = K 0-5 50in cell B, input the formula \"=SQRT(A2)\" and then copy and paste that formula into B3 to B500. 3. Now create the headings Investment, Depreciation, Investment Share, and Depreciation Rate in columns CtoF. a. In cell E2, put the investment rate, v = 0.3, used in class, and in cell F2, put the rate of depreciation that we used, 6 = 0.02. b. In cell C2 we want to input the formula for total capital investment, which is V, where yis the investment rate. We could input \"=0.3"B2\" into C2 but we would like to be able to easily adjust the investment rate and see what happens, so we will input \"=ES2*B2\" The ES2 says take the investment share from cell E2, and when we copy and paste this formula, it always uses cell E2 (not E3, 4, etc.). Copy and paste cell C2 into C3 to C500. c. Depreciation is total capital depreciation, D = K, where is the depreciation rate. As with investment, we might want to alter this parameter, so into cell D2 we will input \"=FS2*A2\". 4. To duplicate the equilibrium graph from class just highlight columns B, C, and D, click the Chart icon (you can also click Chart in the Insert menu), choose XY (Scatter) and the highlighted subtype, and then click on finish. You can play around to present the figure in your favorite formats and labels. Here is what is should look like: Solow Growth Model uuuuu o >~ " =M ~O O UtpUL (Y) nvestment (yY) Depreciaion (&K) 2. [5 participation points] Now use the information you have created in the spread sheet. What is the marginal product of capital when capital increases from 1 to 2, from 10 to 11, from 100 to 101, and from 300 to 3017 Also calculate the growth rate of output for these increases in capital. At what level of capital does the economy grow the fastest? 3. [5 participation points] Suppose the economy is at steady state (K*=225). What would happen in the short- and long-run if some of its capital was destroyed by a natural disaster (but the fundamentals don't change)? 4. [5 participation points] The World Bank decides to give a developing country aid by supplying it with new machines and equipment (capital). Suppose the country's economy is at steady state (K*=225). What will happen to output, consumption and capital growth in this country? Distinguish between the first period and the following. What happens to the long-run output per capita? Instead of this policy, what do you think the World Bank should recommend to achieve long-run growth? 5. [5 participation points] Now increase the savings rate from 0.3 to 0.36. Plot the new equilibrium. What are the new the equilibrium levels of output, capital, investment and consumption? Compared to the case of v = 0.3, does output increase? What about consumption? Why do you think consumption goes up even though the savings rate increases? 6. [5 participation points] Go back to v = 0.3 as in the first equilibrium but now increase the depreciation rate from 0.02 to 0.04. Plot the new equilibrium. What are the new the equilibrium levels of output, capital, investment and consumption? 7. [5 participation points] Go back to = 0.02 and now consider the role of technology by adding A to the production function, i.e.now Y = AK. While until now we have (implicitly) assumed A = 1, now let's consider the case when A = 1.25. To do so follow thee steps: 1. Label column G \"Ideas (A)\" and give it the value of 1.25 in cell G2 2. Modify column 2 \"Output (Y)\" to include the value of ideas: \"=GS2*SQRT(A2)\" Apply this change to all values in column 2 by scrolling down the column until its last cell. Now plot the new equilibrium. What are the new the equilibrium levels of output, capital, investment and consumption? Compared to the case of A = 1, by how much does equilibrium output increase? What about equilibrium consumption