Solow-Swan Model (6 marks).

a) You will demonstrate the importance of diminishing returns to capital in the Solow-Swan model.

Draw a Solow-Swan diagram in which there are constant returns to capital. This would happen iftheproductionfunctionwere Yt = AKt, whereA=1. Furthermore, assume that the sum of population growth and the depreciation rate is greater than the saving rate. Does the economy converge to a steady state in this case? To answer this question, you should draw a Solow-Swan diagram in terms of output per person, as we did in class.Use this diagram to explain why the economy converges to a steady state or not.