Question 14 In Wonderland production per worker (y) depends on capital per worker (k) such that y = 10Vk. Every year 15% of the capital stock depreciates, while workers in Wonderland save 10% of their income. Every year the population grows at a rate of 5%. (a) Explain what is meant by the 'steady state' and find capital per worker and output per worker in the steady state of Wonderland. [10 marks] (b) Illustrate the steady state of Wonderland using a diagram. [5 marks] (c) The country of Neverland is identical to Wonderland in terms of output per worker, the savings rate, the depreciation rate and population growth. They differ in one respect: Wonderland has capital per worker of 10, whereas Neverland has capital per worker of 20. Which country experiences a higher growth rate of output per worker and how will their growth rates evolve over time? [10 mark] (d) How might Wonderland and Neverland achieve economic growth in the long-run? [5 marks]