3.

The Netherlands is described by the Solow model with a production function y = k1/3where y is the output per worker and k is capital per worker. Now, suppose that the fraction of output invested (or saved) is 30%, that the depreciation rate is 1/30 and that there is no population growth.

f. Calculate the country's steady state level of output per worker. (4 points)

g. Now, say that k is equal to 30. Is the country at its steady-state level of output per worker, above the steady state or below the steady state? Show how you reached your calculations. (4 points)

h. Graphically illustrate your answer to f. Also, show how the level of capital in g compares to the steady-state value. (4 points)

i. Now, say that population growth rises from 0% to 2%. What would be the resulting value of this country's steady state level of output per worker? (4 points)

j. If this country wished to return to the original steady-state level of output per worker (i.e. in part f), what could it do? (4 points)