1. Figure 1 shows the evolution of GDP per-capita and the saving rate of Japan. Use the Augmented Solow model and the historical events affecting Japan to describe the evolution of these variables, in isolation and together. Figure 1: GDP pc and saving rate Japan 100 8 28 2 Saving rate 1860 1875 1890 1905 1920 1935 1950 1965 1980 1995 2010 2025 Real GDP per-capita Saving rate 2. Evaluate the following statement as true/false/uncertain and explain youranswer carefully. Please use diagrams and/or algebra when answering the question, when appropriate. According to the Solow model, steady state consumption per capita will be higher in countries that (i) have a better technology, (ii) less population growth, and (iii) have a higher saving rate. 3. Suppose that we have a Solow model with one twist. The twist is that there is agovernment. Hence, the aggregate resource constraint is: Yt = Ct + It + Gt where Gt = It (public expenditure is financed by taxation) and It = rYt. Define private output as Yr = Yt - Gt- Suppose that private investment is a constantfraction, s, of private output (consumption is then 1 - s times private output). A fraction of SGGt is spent on public investment, which supplements the productive capital stock. Otherwise the model is the same as in the lecture. Derive the transition dynamic equation for this economy