Question: Consider the basic Solow growth model (population growth and growth in the efficiency of labor are both zero). The production function is given by \({{Y}_{t}}=10K_{t}^{0.3}L_{t}^{0.7}\). Suppose that the saving rate is 30% and the depreciation rate is 10%.

1. If capital per worker in period 0 (k0) is 5, how much is k1?
2. If capital per worker in period 0 (k0) is 5, is the economy at the steady state, above the steady state, or below the steady state? Defend your answer.
3. Calculate the rate of growth of capital per worker in percentage terms between periods 0 and 1.
4. Calculate the rate of growth of capital per worker in percentage terms between periods 1 and 2.
5. Do your answers to (c) and (d) support the statement that the rate of growth of output per worker in percentage terms is faster the farther away the economy is from its steady state? Defend your answer.

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