1) (18pts) Solow Growth Model: Suppose a ctional island called San Bruno in the Mediterranean Sea has a production function of Y=F(K,L)=K'5L'5. Note that capital per worker is lFK/L and output per worker is y=Y/L. Suppose there is no population growth and no technological improvements in San Bruno. Assume initially L=100 and K=900. Also assume that the savings rate in this economy is 15%. There is not international trade and no government taxes or spending. Therefore, Investment equals Savings. I=sY. On a per worker basis i=sy. a) (lpt) Calculate the initial levels of k and y. b) (lpt) Suppose a massive earthquake strikes the island, decimating the buildings and equipment. Suppose that K=400. Explain what immediate effect this would have on the y and k. c) (2pts) Suppose that before the earthquake, when K=900, the stock of capital was at its steady-state level. Find the rate of depreciation of capital in San Bruno. d) (2pts) Calculate the per capita level of consumption at the pre-earthquake steady state and immediately after the earthquake. e) (3pts) Assuming an unchanged savings rate, what will happen to the economy over the long-run? (Use a spreadsheet to show the progress of the economy as I showed you in class and as shown in your text.) f) (Spts) Find the Golden Rule level of k. (Hint: First derive the MP1,). At the Golden rule what is the savings rate, total output, and total consumption? g) (4pts) Draw a Solow model diagram to illustrate the above problem. Label all axes, curves and key points. Be sure to show the initial pre-earthquake steady state, the post earthquake state and the Golden Rule steady state as well as the associated levels of output and investment. (Hint: You will need curves for both the original savings rate and the golden rule savings rate.)