1. Answer the following questions using the basic Solow growth model, with neither population growth nor technological progress. (a) (C) Draw a diagram with per worker output, y, consumption, 0, and investment, i, on the vertical axis and capital per worker, k, on the horizontal condition. On this diagram, clearly indicate steady-state values for c, 1', and 3;. Briey outline the condition that holds in the steady-state (Le. what is the relationship between investment and the depreciation of capital?). Suppose that society becomes less thrifty, resulting in a lower rate of savings, .5. Using the above diagram, how does the new steadystate capital stock per worker, 1:, compare to the stock in part (a)? How does output per worker compare? Can you conclude unequivocally how consumption per worker changes? Explain. Suppose that the saving rate decreases at time to. On a graph plot 0, y, and 3' against t and show how the economy adjusts between the original and the new steady-state. Briey explain why each variable is changing in the way that you have drawn it in your diagram. 2. Answer the following question using the basic Solow growth model, with neither population growth nor technological progress. (80 Using the standard diagram ((3, i, and 3,: against k], illustrate the situation where the economy is in the golden rule steady state. What makes the golden-rule steady state special? (How does it differ from any other steady state?) What can be said about the marginal product of capital at the golden-rule capital stock? Suppose that the economy is in a steady state where the capital stock per worker is below the goldenrule level. Illustrate this situation (you may use your diagram from part (a)). To obtain the golden rule steady state, how should households change their rate of savings? Suppose that the saving rate changes at time to. On a graph plot c, k, and 2' against t and show how the economy adjusts between the original and the new steady state. Briey explain why each variable is changing in the way that you have drawn it in your diagram