Problem 1. Consider the Solow model (version 1.0) and assume that the economy is in steady state in year 2000. Draw the Solow diagram and label this point A.

Question 1.1. In year 2000 a technological breakthrough increases TFP (A). Assume that the economy needs 10 years to reach the new steady state. Draw it in the Solow diagram and label the 2010 steady state as point B. Based on your analysis, which of the following statements is correct?