Sample Long Question (next page) 3) Economic Growth: Consider the Basic growth model from your text and lecture as defined below: Production function: GDP = f(At, Kt, Lt); where capital (K) and labor (L) are substitutes and technology (A) aids production Demographic Behavior: Lt+1= Lt(1+n) = Nt+1; where n is the population growth rate, N is the total population and there is no unemployment Capital and Savings/Investment Dynamics: Kt+1 = It + Kt(1-8); It = St = s*Y; where & is the depreciation rate of capital, s is the savings rate and investment is I. Technology Change: At+1= At(1+1); where ^ is the constant growth rate of technology Suppose output would be Y*1 in the next period if nothing changed.Part 2: Consider the savings / investment functions. c] What is the effect of an increase in the savings rate 5 0n GDP growth? d] How does the savings rate affect growth [what is the mechanism, 1-2 sentences]? Now suppose that a country has a very low GDP, such that GDP per capita can purchase exactly enough food to exactly satisfy a minimum consumption constraint (meaning all households must consume at least that much). e] What is the savings rate ofthis country? t] What level of capital will this country achieve in the long run