In a country, output is produced with labor and physical capital. The production function in per-worker terms is y = k1/2. The depreciation rate is 2%. The investment rate (γ) is determined as follows:

g = 0.20 if y … 10 g = 0.40 if y 7 10 Draw a diagram showing the steady state(s) of this model. Calculate the values of any steady state levels of k and y. Also, indicate on the diagram and describe briefly in words how the levels of y and k behave outside of the steady state.

Comment briefly on the stability of the steady state(s).