Question 2: (7 marks) Consider the following model based on Solow-Swan model: Kt=It0.3Kt, (1) Capital Dynamics It=St, (2) Goods Market Equilibrium St=0.4Yt, (3) Savings Function Yt=1.5Kt0.25 (4) Production Function Yt=St+Ct (5) Income Function In the above, Yt stands for output in period t,Kt for stock of physical capital, It for investment, St for savings, and Ct for consumption. There is no population growth and the population is normalized to N=1. Based on the above information, answer the following questions. a) (2 marks) Suppose the economy is at a steady state. Derive the equilibrium steady state value of capital K. b) ( 3 marks) Derive the equilibrium capital accumulation equation, and for an initial value of the capital stock K0=2 in period 0 , derive the value of K1 and C1. Suppose a government sector is introduced in this Solow-Swan model, with: Gt=TtTt=0.25Yt A fraction of government expenditures 0.2Gt is spent on public investment, which supplements the productive capital stock. c) (2 marks) Derive the equilibrium capital accumulation equation for this economy. Question 2: (7 marks) Consider the following model based on Solow-Swan model: Kt=It0.3Kt, (1) Capital Dynamics It=St, (2) Goods Market Equilibrium St=0.4Yt, (3) Savings Function Yt=1.5Kt0.25 (4) Production Function Yt=St+Ct (5) Income Function In the above, Yt stands for output in period t,Kt for stock of physical capital, It for investment, St for savings, and Ct for consumption. There is no population growth and the population is normalized to N=1. Based on the above information, answer the following questions. a) (2 marks) Suppose the economy is at a steady state. Derive the equilibrium steady state value of capital K. b) ( 3 marks) Derive the equilibrium capital accumulation equation, and for an initial value of the capital stock K0=2 in period 0 , derive the value of K1 and C1. Suppose a government sector is introduced in this Solow-Swan model, with: Gt=TtTt=0.25Yt A fraction of government expenditures 0.2Gt is spent on public investment, which supplements the productive capital stock. c) (2 marks) Derive the equilibrium capital accumulation equation for this economy