5. Consider the Solow diagram in Figure 2 below. At K1, the difference between Y and EY is: (a) output. (c) consumption. (e) none is correct. (b) investment. (d) depreciation. Figure 2: Solow Diagram with Output INVESTMENT. DE PFIECI ATION Y AND OUTPLFI' K1 K2 CAPITALK 6. In the model of production seen in Lecture 4, the productivity parameter enters the equation for output per person with an exponent of one while. In the Solow model, productivity enters the equation for steadystate output per person with an exponent greater than one. This happens because (a the endogenous level of the capital stock itself depends on productivity. (b there is no productivity parameter in the production function model. ) ) (c) the productivity measure is zero in the production function model. (d) the productivity measure is negative in the Solow model. ) (e the exogenous level of the capital stock itself depends on productivity. 7. Consider a natural disaster which destroys a large portion of a country's capital stock. The saving and depreciation rates, the level of productivity and the total population all remain unchanged. According to the Solow model seen in classI the economy will grow and eventually reach (a) the same steadystate level of output as it would (c) a lower steadystate level of output than it would have before the disaster. have before the disaster. (b) a higher steadystate level of output than it (d) NOt enough information is given. would have before the disaster. (e) None of these answers is correct