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2. (20 points) Consider an economy which is described by the Solow growth model, where output is produced using the following pro- 1 l duction function: Yt = GK? + gLf) , where K: is the amount of the capital, and L; is the amount of labour used in production in period t. There is no population or productivity growth. Capital depreciates at rate 6, while the savings rate is equal to s. w (a) Does this function display decreasing, constant or increasing re- turns to scale? Explain. | (b) Find the steady state value of capital per capita. How does it depend on 5 and s? [