Consider an economy that is characterized by the Solow Model. The (aggregate) production

function is given by:

Y = 30K1/2(LxE)1/2

Note: Keep your answer to 4 decimal places if needed. Be sure to show your work.

In this economy, workers consume 75% of income and save the rest. The labour force is growing at 3% per year while the annual rate of capital depreciation is 5%.

Initially, the economy is endowed with 4500 units of capital, 200 workers & 200 effective workers.

a) Is the economy in its steady state? Yes/no, explain. If the economy is not in its steady state,

explain what happens to the levels of capital per effective worker and output per effective worker in the economy during very long-run transition. (5 points)