Q.5 In the Solow model presented in this section, when the economy is in the steady state, output per nominal labour grows at a constant rate. At what rate? (1 point)

Q.6 In the Solow model presented in this section, when the economy is in the steady state, the total output grows at a constant rate. At what rate? (1 point)

Q.7 Considering your answer to Q.5 above, for a given steady state, what is the key for raising the average standard of living? (1 point)

Section 2. Short-answer questions (10 points) Let us consider economic growth in a Solow model. The total output (denoted by Y) is modelled by the following production function f(-): Y = f(K,LE) where K denotes the total stock of capital (excluding human capital), and LE the total stock of effective labour. The latter quantity is modelled as the product ofthe total stock of nominal labour (denoted by L) and the level of labour-augmenting technology (denoted by A), that is, LE = LA. By dividing every term in the displayed equation by the total stock of effective labour, we obtain YE = ing) where 31,: denotes the output per effective labour, and k5 the stock of capital per effective labour. Let us assume that the model contains four exogenous parameters: the saving rate (denoted by s), the rate of capital-stock depreciation (d), the population-growth rate (11), and the rate of labour- augmenting technological progress (a).|