Consider a Solow economy that begins in steady state. Then a strong earthquake destroys half the capital
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Consider a Solow economy that begins in steady state. Then a strong earthquake destroys half the capital stock. Use a Solow diagram to explain how the economy behaves over time. Draw a graph showing how output evolves over time, and explain what happens to the level and growth rate of per capita GDP.
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The economy in the Solow model is at equilibrium when sf y d nk whe...View the full answer
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