In a country, output is produced with labor and physical capital. The production function in per-worker terms is y=k^1/2. The depreciation rate is 2%. The investment rate (&) is determined as follows:
&=0.2 if y<=10
&=0.4 if y>10
Draw a diagram showing the steady state(s) of this model. Calculate the value of any steady state levels of k and y. Also, indicate on the diagram and describe briefly in words how the levels of y and k behave outside the steady state. Comment briefly on the stability of the steady state(s).