Use the Solow model to evaluate this question.You are the chief economic advisor to a small Caribbean country with an aggregate per capita production function ofy =3k.The savings rate is 6%, and the rate of depreciation is 10%.Population grows at a rate of 5%.There is no technological progress.

a.(3)On a graph, show the output, break-even investment, and savings functions for this economy (as a function of capital per worker).Denote steady-state capital per workerk* and steady-state output per workery*.Labelyour graph completely for full credit.

b.(2)Write down the equation used to solve for the steady state, and find the numerical values of this economy's steady-state levels of capital per worker and output per worker. (fractions or decimals are fine)

c.(2)If capital per worker equals four units (k=4), explainin wordshow the economy works its way toward the steady state.

d.(3)Ifk=4, write down the equations for and find the numerical values of: (i) investment per worker; (ii) break-even investment per worker; (iii) output per worker; and (iv) consumption per worker.Identifyeach of these on your graph (draw a new graph if necessary to see clearly).

e.(2)Ifk=0, explainin wordswhat happens.

f.(1)How fast is output per worker in this economy growing in the long run?Explainhow you know this.

g.(1)If the rate of technological progress in this country were 4%, at what rate would output per worker grow in the steady state?

h.(2)Say that the economy is originally in the steady state identified in part b when population growth decreases to 3%. Explainin wordswhat happens to the growth rate and level of output per capita, being sure to address what happens both in the short run and in the long run.

i. (2)Say that the economy is in its original steady state (part b), when a hurricane destroys 1/3 of its capital stock. How does this change the steady-state level of output per capita?

j. (2)While the Solow model does not directly include any government policies, name one specific government policy that could increase long-run growth in output (income) per capita as described by the Solow model.