1.The Harrod-Domar model has the following simple production function y = Ak. Assume that there is some level of income (let's say poverty line yp) which people need to consume in order to survive. We define discretionary income as yd =y - yp if the income is above the poverty line and equal to zero if it is below. We also assume that individuals save a constant share of their discretionary income. In other words

sy = y-yd (i.e., there is no saving if income y is below yp). Assume that the rate of depreciation of capital is delta() and that there is no population growth.

(a) What is the functional relationship between growth and physical capital in this model? Show graphically where y is on the vertical axis and k is on the horizontal axis. Describe the graph briefly.