Using the Solow model for a country with the production function Y=AK.25N.75.

a. Show graphically what happens to kss when a very poor country starts in steady state equilibrium in 1990 when the government uses policy to increase the countries savings rate?

b. Calculate steady states: k1990, k2008, k1990, c2008, c1990, y1990 and y2008 Assuming the following values: in 1990 a savings rate of 15%, population growth of 15%, total factor productivity of 2, and depreciation of 5%, and by 2008 the savings rate is 30%, population growth is 15%, total factor productivity is 2, and depreciation is 5%.

c. Suppose that in 1990 instead of increasing savings the country received a foreign aid package. Show graphically and compare what could happen to kss in the standard Solow model and also the poverty trap model when they receive the foreign aid.