Exercise 6. The effects of various parameter changes Let a base scenario be defined by the economy being, in all periods from 0 to 200 say, in steady state of the Solow model with human capital at parameter values c1. = (/) = . sK = 0.1 2, sH = 0.2, c5 = 0.055, n = 0, g= 0.02, and with an initial value of the technological variable A0 = 1.

We will consider various alternative scenarios, each one defined by the economy evolving according to the base scenario from period zero through period nine, while (working first time) in period ten a permanent shift in one (or several) parameters occurs, while other unmentioned parameters stay unchanged.

For each alternative scenario the qualitative effects of the parameter shift should be described and illustrated by showing how it affects the phase diagram and by explaining intuitively the transition towards the new steady state. The quantitative effects should be computed and illustrated by conducting the appropriate simulations and creating the following figures: