A closed economy is currently in its steady state. Recently, the economy had a wildfire, and the wildfire had destroyed some of the capital. As a result, the stock of capital falls by 5%.

1. In the context of the long-run classical model, what happens to the long-run equilibrium levels real interest rate? Explain and support your answer with ONE the diagram for the market for loanable funds.  
2. According to the Solow Model, what happens to the steady-state capital-labour ratio? In the new steady state what happens to the growth rate of output per worker? Explain and support your answer with ONE appropriate diagram. Be sure to explain what happens to the variables of interest during transition to steady state.