1. Suppose the aggregate production function in the Solow-Swan model is Cobb-Douglas, y = k" with o = =. Assume population growth n = 1%, technology growth g = 2%, and depreciation 6 = 5%. (a) Derive k*, y*, and of as functions of the model parameters and determine their values when the saving rate s = 24%. (b) Assume both labour and capital are paid their marginal products and the economy is on a balanced growth path at time ( = 0: i) What is the real wage w(0) if A(0) = 17 ii) What is the growth rate of wages w/w? iii) What is the return to "working" capital r (net of depreciation)? iv) What are the shares of income going to (both "working" and "dead/depreciated") capital and to labour? (c) How would your answers to part (b) change if the savings rate were s' = 30% economy were on the balanced growth path? (d) Draw the transition given a change in the saving rate from s = 24% to s' = 30% in the basic diagram for the Solow model. (e) What are the growth rates of real wages, w/w, and the return on working capital, r/r at the beginning of the transition when k = 1? What do these results predict about real wage growth and the return on working capital as an economy with a high saving rate approaches its new new steady state? (f) Can the economy achieve a higher of than for s = 30%? Why or why not