1.A decrease in the investment rate.Suppose the U.S. Congress enacts legislation that discourages saving and investment, such as the elimination of the investment tax credit that occurred in 1990.As a result, suppose the investment/savings rate falls permanently from to . Examine this policy change in the Solow model without population growth ( ) or technological progress ( ), assuming the economy is initially in steady state.

a.Show the effects in the basic Solow Model's diagram.

b.Assume is the Golden Rule savings rate (i.e. the max-consumption savings rate).Show the time paths for output per worker (y), capital per worker (k), investment per worker (i), and consumption per worker (c).

c.Assume is the Golden Rule savings rate (i.e. the max-consumption savings rate).Show the time paths for output per worker (y), capital per worker (k), investment per worker (i), and consumption per worker (c).

d.Can we say if the people in the economy are better or worse off after this policy change? Explain.