Use the Solow model to solve. Suppose, you are the chief economic advisor to a small African country with an aggregate per capita production function of y=2k1/2. Population grows at a rate of 1%. The savings rate is 12%, and the rate of depreciation is 5%.
(a) 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 worker k* and steady-state output per worker y*. Label the graph completely
(b) What is the numerical value of this economy’s steady-state level of capital per worker? Output per worker? Show all necessary steps in computation.
(c) If capital per worker equals two units (k=4), explain how the economy works its way toward the steady state. Explain in words.
(d) How fast is output per worker in this economy growing in the long run? Explain
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