a) Consider a closed economy where goods are produced according to: Y = K (AL) where Y, is output, X, is capital stock, A, is Knowledge and L, is labour input. Hlouseholds save a constant fractions of current income Y',, capital depreciates af rated, the population grows at a constant rate n and knowledge A, grows at rate g. b) QUESTION FOUR Derive and explain the Harrod-Domar condition for equilibrium growth. Remember to state all the underlining assumptions. (10 marks) b) Explain the drawbacks of the Harrod-Domar model of growth (10 marks) Derive the "per effective worker" production function. ii. 16 Marks] Comment on the properties of the above production function. Show that consumption in any one period is a function of the present value of future 16 Marks] income at that period. 18 Marks] QUESTION FIVE Explain the effects of price stickiness and wage rigidities on the aggregate supply function. Use well labelled diagrams where applicable. Analyze the stability of the adjustment process by presenting the phase diagram and the dynamics of the process given the budget deficit is the time rate of change of money stock: [10 Mark] dM = DM = P [g-((y)] di [10 Marks] a) b)