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marks) iv. Show the transition to this new steady state graphically. Explain what happens as soon as the labour force participation rate rises and then how does the economy move after. (5 marks) Question 2 (20 marks) Consider the standard Solow framework. The output in the economy is given by Y = KaLla! Here K is the capital stock and L the labour (and population, unlike Question 1 above) in the economy. The accumulation equations for inputs are again standard K = sY 6K L _ L n The savings/investment rate in the economy however is a function of per capita output. The relationship is given below 5 = {31 if y > )7 52 if)' 5 y And 51 > S; i. Depict the above setup graphically. Carefully label the graph and mark the steady statels). Explain your graph briefly. (6 marks) ii. Analytically calculate the steady state(s) in the above model. (4 marks) iii. Take two countries A and B. Let 37,; y. Using the graph above (please redraw it rather than do all in one graph) plot the transitions of these two countries to their steady states. (6 marks) iv. what is the 'convergence' hypothesis (no stories please! Brief explanation). If the above model is a good description of reality will you get convergence in the world economy? Will you get conditional convergence? (4 marks)