Directions: To solve the questions below you will need to use the following equations of the Solow model: 1. The production function: y = Aka. 2. The change in capital per worker: Ak = sf(k) -6*k Whereas the steady state defined as: of (k ) = ok" 1. The market production function: y= vk (i.e. y=k"-), where y is product per worker and k is capital per worker. a. calculate the value of y in the steady state as a function of: The savings rate - s. The depriciation rate -6 Instruction: you should find K as a function of s,8. To do that use the equations above. After having found it plug the K that you found to find the output of the steady state, which will also be a function of s,8.b. Use the functions that you found above to answer the following: In a developed country the savings rate of 28% ($ 0.28) In a less developed country, there is a savings rate of 16% (s 0.16). In both countries the depreciation rate 6 0.04. a. Find the value of y in the steady state for each country. Notice: The parameters should be plugged in the functions in the decimal form. b. What would you recommend for the less developed country to do in order to increase the level of product per worker? 2. How do the following changes affect the product per worker and capital per worker? Analyze each seperately using the graphs. a. The consumption culture decreased the saving rate in the economy. b. Due to technological improvements the depreciation rate of the capital decreased. 3. During the 1990s there was a huge immigration from former USSR. Assume that the savings rate (s) is the same for the population in Israel and the immigrants from former USSR. Assume also that the immigrants did not bring with them capital goods. a. Use the Solow model to explain the following: a. What happened right after the arrival of the immigrants (i.e. in the short run) to: i. the capital per worker ii. the product per worker b. Will the product per worker and capital per worker of the new steady state (i.e in the long run) be different than the product per worker and capital per worker of the steady state that was before the arrival of the immigrants? C. Explain what happens to the investment from the time of arrival until reaching the steady state