Suppose we are at steady state in the solow model suddenly, Ask an Expert

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Suppose we are at steady state in the Solow Model. Suddenly we have a significant technological advance.

(a) Show, using properly labeled graph(s), how this improvement in technology affects the steady state levels of income per worker, consumption per worker, and the capital-labor ratio.

(b) Does steady state income per worker increase, decrease, or stay the same?

(d) Does the steady state capital-labor ratio increase, decrease, or stay the same?

(e) Do any of your answers depend on what you assume about the golden rule capital-labor ratio? Why or why not?

(f) Now suppose the country has been in a war and half of the nation’s capital stock has been destroyed. Describe the affect on consumption per work in the long run (i.e., steady-state).

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M91401172

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