USA and Mexico have identical production functions, depreciation rates, and labor productivity growth rates. USA saves at its Golden Rule rate and has a lower population growth rate. Mexico saves at a rate lower than its Golden Rule savings rate (compared to USA ) and has a higher population growth rate (compared to USA ). Both countries are currently at steady states.

1. Carefully draw two Solow-type graphs: one for USA and one for Mexico demonstrating their steady state equilibria.
2. Suppose a significant amount of labor migrates from Mexico to USA. Demonstrate this on your graphs.
3. What happens in the short run and in the long run? Show this on your graphs.
4. Explain whether mass migration from the poor to the rich countries may solve the problem of poverty in the long run.

It is important that you draw the graphs accurately and with correct labels.