Consider a country with production function , where y =5k^1/2, where y is the output per worker and k is capital per worker. Suppose the investment in capital occurs at a rate of35% of income per worker every period, depreciation rate is 1.5%and population growth rate is 2%. Use excel to plot the production function, investment line and capital depletion line with k on the x-axis(use the attached spread sheet to draw your graphs).-attached spread sheet shown below*****

a. What is the steady state level of y and k.

b. Suppose TFP increases by 20%. What happens to the SteadyState y and k?

c. Suppose the investment rate increases to 40%. What happens tothe steady state y and k?

 

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0 100 200 300 400 500 600 700 800 900 1000 1100 1200 1300 1400 1500 1600 1700 1800 1900 2000 2100 2200 2300 2400 2500 2600 2700 2800 2900 3000 3100 3200 3300 3400 3500 3600 3700 sy (d+n)k Parameters d TEA n А S 0.015 0.02 5 0.35 0 100 200 300 400 500 600 700 800 900 1000 1100 1200 1300 1400 1500 1600 1700 1800 1900 2000 2100 2200 2300 2400 2500 2600 2700 2800 2900 3000 3100 3200 3300 3400 3500 3600 3700 sy (d+n)k Parameters d TEA n А S 0.015 0.02 5 0.35