Question: QUESTION 1 - 28 marks This question is about the Solow growth model . The economy is initially in steady state . The Solow economy

QUESTION 1 - 28 marks This question is about the Solow growth model . The economy is initially in steady state . The Solow economy can be described by the following equations : AK,1 = I,- dK, (1) I, = HY, (2) Y = AK 1/3 12/3 (3) L = L (4) Y, = 0, +1, (5) (a) What do we mean by an endogenous variable in economics? List the endogenous variables in the Solow model. Also list the exogenous variables and parameters. Briefly explain what each of the exogenous variables and parameters mean . (7 marks ) (b) On a graph, show the solution to the Solow model. Explain why the economy always converges to a steady state over time. (7 mark:)

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