1. Consider the Solow growth model. In the current period there areN= 1000 consumers and the population grows annually at a rate of 2%. The production function is given byY=zKN1where= 0.4 andz= 1.1. The depreciation rate is= 0 and the savings rate iss= 0.2.

• (5pts) Calculate steady-state output and consumption per capita in the current period.
• (10pts) Calculate aggregate output, aggregate consumption and aggregate cap- ital in the current period and after 10 years. By what percentage does aggregate output, aggregate consumption and aggregate capital grow over 10 years?
• (10pts) Suppose that at the beginning of the current period the population growth rate increases to 4% for the current period and in the next period returns to the previous 2% growth rate indefinitely. Find output per capita for the next two periods. Find aggregate output for the next two periods. Find the long-run output per capita.