Question III Prices Consider the Solow growth model with population growth and technology growth. Suppose that. 1: = 0.1 and that n = 0.02, i.e., A; : (l+0.1)At_1, and L3 : {1+002)L[_1. Output is created by a Cobb-Douglas production function combining Labor, Lt, and capital. Kl. such that output Y; is given by y. : AiKg'Ltl'\". (3) Recall that efcient units of labor are given by w 4 L1 : All _a Lt. Assume that (i = 0.1. .9 = 0.2. and or = 0.3. Note that this is the same Inodel as in Question II (so you do not have to recompute the same objects). Recall that firm optimality implies that wages, wt, and rental rate on capital, Tl, are given by w; = (1 i or) Ath'LtQ, (4) r. : crAiKg"]Lt1_\". {5) 1. Use equation [4) to show that w: = (1 _ a] '5': where y, is output per worker. Use this nding to compute the growth rate of wages in this economy Wt 9w : _1- wtl 2. Use equation [5) to show that T: : (1k?_1. If capital per efcient. worker is at its steady state level, What is the rental rate on capital? 3. Suppose that the savings rate in this eeonorn).r increases to s = 0.3. \"That happens to the growth rate of wages? What about the rent. on capital? Provide intuition for your ndings