1.Consider the following modified Solow model: output, Y, is produced using capital, K, and labor, L. The production function for output is given by:

Y = K L^1-

with >1.

Output per worker, y=Y/L, is the main focus in this model and it is a function of capital per worker, k (k=K/L).

s is the savings rate and s*y represents investment in this model.

Let denote the rate at which capital depreciates and n the population growth rate. The capital accumulation equation is given by:

k = sy - ( +n)k

a. Explain using a graph why there is a poverty trap in this model.

b. Describe how an economy such as one characterized by this model may break out of a poverty trap.