1. Derive the fundamental equation of the Solow model

2. Country A and country B both have the production function

a. Does this production function have constant returns to scale? describe.

b. What is the per-worker production function, y = f(k)?

c. Assume that neither country experiences population growth or technological progress and that 5 percent of capital depreciates each year. Assume further that country A saves 10 percent of output each year and country

B saves 20 percent of output each year. Using your answer from part (b) and the steady-state condition that investment equals depreciation, find the steady-state level of capital per worker for each country. Then find the steady-state levels of income per worker and consumption per worker.