You are told that the aggregate

production function of your country is

Y= AK^1/2(N^1/2)

a) Derive the expression for per capita income.

You are subsequently told that the economy hosts 4,000,000 unit

s of capital with a population of 10,000. In

addition, A=1, the rate of savings (s) is 50%,

population growth (n) is 1%

and capital depreciates (d) at a rate of 4%.

b) Use the above information to determine if the country is at its

steady state, below it or above it. What if anything will happen to

the capital stock under these conditions and why?

c)

Suppose there is a large improvement in total factor productivity such that

A=2. Will the economy be

operating at, above or below its steady state now? Explain!