1.Describe and illustrate the concept of the 'Impossible Trinity'.

2.Using three countries and highlighting their policy structures, examine the three options that are available under the impossible Trinity.

3.Identify two assumptions of the basic Solow Growth Model.

b. Why are these assumptions important in supporting the Solow Model?

c. You are given the following information about an economy.

Y = C + I

Y = F(K, L)

The aggregate production function for this economy exhibits constant returns to scale and the marginal products of labor and capital are both subject to diminishing returns.

s = saving rate (assume this is constant) per year

= depreciation rate (assume this is a constant) per year

y = Y/L

k = K/L

k* = steady state of capital per worker (K/L) and sf(k) < k.

i. What is sf(k)?

ii. What is k?

iii. Interpret the meaning of sf(k) < k?

iv. Graphically illustrate sf(k), k, and k*.

Indicate on your graph where sf(k) < k.

v. Explain what happens in this economy when sf(k) < k.

Question 5 a. According to Solow Growth model, capital stock is a key element of the economy's output. Despite this, capital stock changes over time, where those changes can lead to economic growth. Given the two forces that influence capital stock, show graphically and mathematically how a steady state level of capital is determined.

Question 6 a. Graphically depict the Golden rule level of capital. Label all points clearly.

b. Explain the concept of the Golden rule level of capital.

c. Why might the Golden Rule steady state be preferred to the initial steady state?

d. Look at the hypothetical data in the table below:

Real GDP per capita Nigeria $1,000 Mexico $8,000 China $15,000 United States $33,000

Fact is, changes in income over time explains economic growth of a country. Using two sources of growth, account for the large differences in income per capita across these countries?

e. Discuss three policies governments can use to promote economic growth.