1. A country is described by the Solow model, with a production function of y=k ½. Suppose that k is equal to 400. The fraction of output invested is 50%. The deprecation rate is 5%. Is the country at its steady state level of output per worker, above the steady state, or below the steady state? Show how you reached your conclusion.
2. In Country 1 the rate of investment is 5%, and in Country 2 it is 20%. The two countries have the same level of productivity., A, and the same rate of deprecation, δ. Assuming that the value of α is 1/3, what is the ratio of steady state output per worker in Country 1 to steady state per worker in Country 2? What would the ratio be if the value of α were 2/3?