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Economics

According to the Solow growth theory that we have studied, how would each of the following events affect per capita consumption in the long-run. Illustrate graphically and explain.

(Assume that the capital-labor ratio is always less than the golden rule level of the capital-labor ratio)

(Hint: First consider whether the shock is permanent or temporary, then compare the new steady states with the initial steady states)

a. A terrorist attack destroys a portion of the nation's capital stock.

b. A decrease in the birth rate leads to a permanent decrease in the nation's rate of population growth.

c. A discovery of massive new oil reserves leads to a permanent decrease in energy prices.

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Microeconomics, Economics

Category:- Microeconomics
Reference No.:- M91229781

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