4. The effects of the German reunification in the Solow world. Imagine that the West German economy in 1989 was well represented by the following set of equations, all in per capita terms, Output Population Evolution of capital Wage rate Interest rate Kit+1 Yit = AK N = N-1 (1 + n) (1-6) Kit + (1+n) Yit (1+n) rt = aA (Kit)a W = (1 a) A (Kit) Let's assume that at that time West Germany was in steady stat. and the only effect of the reunification was a one time 25% increase, through large migrations from East Germany, of its population. a) Draw the phase diagram for pre-1989 West Germany. b) Use the phase diagram trace the effects of the reunification. Describe how the economy moves to steady state. c) Sketch time paths of the log of population, output per capita, wages and the return to capital (before, at the time of the reunification and after). d) Under our assumptions, who benefits from the reunification: the owners of capital or the workers in West Germany? What about the workers that remain in East Germany?