Table 1 reports economic data from two countries, South Korea and the Philippines. Both countries are assumed to be in steady state. Table 1: Steady State Output per worker, Y/L Investment Rate, s Depreciation Rate, d South Korea 35% 5% Philippines 0.5 10% 5% Suppose that both countries produce output according to the production function It = AK,1/312/3 Where A can be different across the two countries. B.1 Please write down the capital accumulation equation in the Solow model that we have seen in class, and carefully describe each term in the equation. What are two forces that work in opposite directions for capital accumulation? B.2 Using the capital accumulation equation you displayed in B.1 obtain an expression for capital and output in steady state. Show your work B.3 Use the steady state equation for output that you derived in B.2 and the data in Table 1 to compute the value of the parameter A for both South Korea and the Philippines. What factor of the difference in output per worker across the two countries is explained by differences in TFP? Show your work. B.4 Suppose that the Government of the Philippines would like to modify by economic policy the investment rate in the country so that the level of output per worker in steady state is increased to the level of South Korea. What should be the new value of the investment rate in the Philippines to achieve the government's objective? Show your work. B.5 Using the Solow diagram that we studied in class describe the effect of the investment rate policy considered by the Government of the Philippines on steady state capital, output, and consumption. For the sake of the exercise let us assume that the change in the investment rate would be immediate and permanent and that there would be no other changes in the parameters of the model from that point onward. B.6 Using the results from the Solow diagram in B.5, draw the impulse response functions for both output per worker and consumption per worker for the Philippines that show the effect of the government's policy over time. Please provide an economic intuition for the impulse response of consumption per worker. Show your work. B.7 Do you think that all consumers in the Philippines would be happy about the new investment rate policy that the Government would like to implement if they saw your answer in B.6? Please discuss. B.8 Suppose that the factor markets for labor and capital are perfectly competitive in the Philippines. Please compute the rental rate of capital in the Philippines at the steady state before the new investment rate policy and at the steady state after the new policy. Please provide an economic intuition to your answer. Show your work. (hint: use the factor prices we derived in the production model)