Consider the following economy. The production function is (, ) = ^0.3*L^0.7. The saving rate and the depreciation rate are respectively: = 0.10 and = 0.07. Population growth is 1%, i.e. = 0.01.

c. Derive the capital accumulation equation for this economy. (20 marks)

d. Find the steady state value of the capital stock per capita. (10 marks)

e. Suppose that the initial capital stock per capita is: = 1.5. Discuss the process of convergence of the economy to the steady state using the appropriate diagram