1) Assume an economy is ruled by the following production function: Yt = Ke. 4 ( L + Et ) 0.6 where Et is a technological factor (augmenting labor factor). Assume its growth rate is 0.02 (2%). Assume population growth is 0 and depreciation rate of physical capital is equal to 0.05 (or 5%). Saving rate is 0.30. a) Find the steady state. b) Assume the technological factor experiences a decrease of its growth from 0.02 to 0.00. Find the evolution of capital per worker, output per worker, and consumption per worker and show their dynamics towards a new steady state (you can use excel exercise to help yourself in explaining the intuition behind your answer). c) Coming back to the steady state found in (a), assume the weather forecasts perfectly predicts a hurricane so it gives time to their inhabitants to keep themselves safe during the hurricane (no human fatalities). However, the hurricane destroyed a big portion of the capital stock. Show how this negative shock affects the economy and show the transition towards the new steady state (you can use excel exercise to help yourself in explaining the intuition behind your answer). 2) People expect great economic growth for next several years. Therefore, expectations about future income increases. Given this, consumers decide to consume more today. You can think of this as an increase in the autonomous part of consumption (that is, for a consumption C = Co + c(Y - T), there is an exogenous increase in Co). Explain the changes in the economy given this, in particular focus on investment and equilibrium interest rate