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Suppose you have a production function Yt=F(Kt,Lt)=AKtLt1 and the resource constraint Yt=Ct+It+Gt and the capital accumulation equation Kt+1=It+(1d)Kt Consumers consume a certain fraction of the output so the consumption equation is Ct=(1s)Yt The government spending Gt is a fraction of capital stock, so with the higher capital stock, there is more government spending. Gt=gKt Assume there is no population growth, so Lt=Lt+1=L (a) Derive a Solow-Growth model and describe the intuition of the equation. (b) What is the key assumption in this model (c) Find the steady state per-worker quantities of capital, output, and consumption (d) Draw the Solow model (the x-axis is Capital stock, the y-axis is output) (e) Suppose there was a big government spending. Therefore, g increased. What is the new steady state per-worker quantities of capital, output, and consumption? Suppose you have a production function Yt=F(Kt,Lt)=AKtLt1 and the resource constraint Yt=Ct+It+Gt and the capital accumulation equation Kt+1=It+(1d)Kt Consumers consume a certain fraction of the output so the consumption equation is Ct=(1s)Yt The government spending Gt is a fraction of capital stock, so with the higher capital stock, there is more government spending. Gt=gKt Assume there is no population growth, so Lt=Lt+1=L (a) Derive a Solow-Growth model and describe the intuition of the equation. (b) What is the key assumption in this model (c) Find the steady state per-worker quantities of capital, output, and consumption (d) Draw the Solow model (the x-axis is Capital stock, the y-axis is output) (e) Suppose there was a big government spending. Therefore, g increased. What is the new steady state per-worker quantities of capital, output, and consumption

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