1. (2%) Explain the theory of institutions. (My biggest advice here is time management. This is on 2 points out of 8, indicating that I want you to spend 2 Jf8"'30='i'.5 minutes on this, not more not less. I don't want a long essay, I want a short and ooncise explanation with clear sentences). 2. a) (2%) In the Solow model, suppose 520.3, 520.05, output le) : ME. The economy starts at time t=0 with k=l. Suppose there is expropriation by the government: the en- trepreneur gets to keep only 30% of its output. What is capital per worker at time t=1? How does it compare with the case of no expropriation? b. (2%) What is the long-run equilibrium with these numbers (expropriation is the same at every period)? How does it compare with the equilibrium without expropriation? c. (2%) Conclude on this new model: how does a rate of expropriation of (IOU-30:) 70% compare with reality? Can this rate of expropriation help explain the difference of wealth across countries? What does that mean about the Solow model