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Economics

Suppose a country enacts a tax policy that discourages investment. As a result, the value of the parameter ¯s now goes to a smaller value ¯s ′ .

a) Assuming that the economy starts at its initial steady state, use the Solow model to explain what happens to the economy (after the change of ¯s) over time and in the long run.

b) Draw a graph showing how output evolves over time (put Yt on the vertical axis and time on the horizontal axis). What happens to economic growth over time?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M91566165

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