Question 14 On the island of Solownia production per worker (y) depends on capital per worker (k) such that y = 4Vke. Every year 15% of the capital stock depreciates, while the workers of Solownia save 10% of their income. Every year workers emigrate to the mainland, causing the population to shrink at a rate of 5%. (a) Capital per worker in Solownia is 16. Find output per worker and savings per worker. Is output per worker growing in Solownia? Explain why, or why not. [8 marks) (b) Illustrate the steady state of Solownia using a diagram. [6 marks] (c) The government launches a campaign to encourage workers to relocate to Solownia. As a result, the population now grows at a rate of 5%. Analyse the effect of this on output per capita in Solownia and illustrate it in your diagram. [8 marks] (d) How might Solownia achieve economic growth in the short-run? What about in the long-run? [8 marks) END OF PAPER tv A A