Capital accumulation and growth (35 points). As a consultant to a major consumer goods

producer you are charged with surveying Syria as a potential future market. You are asked to

forecast economic growth in a post-war Syria. Technical reports on the country reveal that the

share of income paid to capital is 33 percent (i.e., = 1/3), capital depreciation is 15 percent

per year, and the saving rate is 25 percent per year. The following equations describe the

steady state capital stock and output in the Solow model.

a. Use the Solow Growth Model to compute the steady state capital stock for Syria when

the available labor, L, is 100. Assume that there is no population growth or technological

growth and that A = 1. Also assume that the entire population works, that is, L is the

entire population. (5 points)

b. What is the value of steady state output and output per capita? (5 points)

c. Suppose that after the war, Syria is left with only 10% of its steady state capital stock.

What is output per capita in Syria? (5 points)