Question 2 The Harrod-Domar growth model is a simple macroeconomic growth model that states that investment is proportional to change in income: Iy = 2.5(Y; Yey), where I;is the investment at the time-period (in $ million) ; and Y;_, are the income at the time-period t and t 1, respectively (in $ million) 3.5 is the capital-output ratio (constant). The savings at the time-period depends on the proportional share of income: S = 0.15Y;, where S, is the saving at the time-period (in $ million) 0.25 is the average saving rate (constant). Investment and savings must be equal in any period so that the equilibrium condition can be written as It = St- Using the assumptions above answer the following questions: ! The Harrod-Domar model (named for Harrod and Evsey Domar, who worked on the concept independently) explains how steady growth may occur in the economy. (a) Write the equilibrium equation as a difference equation in , using the equilibrium condition provided above. (b) Solve the difference equation that you derived in (a), assume that given , = $6.25 million. (c) Comment on the stability of the system