Question: 2' Consider the Solow model. Suppose the eeonorny is initially in a stead}r state. Then, the savings rate increases from 1 to 2 > s1.

2' Consider the Solow model. Suppose the eeonorny is initially in a stead}r state. Then, the savings rate increases from 1 to 2

> s1. \\Nhat happens to the capital stock and output. over time?

Explain your answers using a Solow diagram. Draw a graph sl'rowing the

2' Consider the Solow model. Suppose the eeonorny is initially in a stead}r state. Then, the savings rate increases from 1 to 2 > s1. \\Nhat happens to the capital stock and output. over time? Explain your answers using a Solow diagram. Draw a graph sl'rowing the time evolution of output per person (i.e., with time on the xaxis and output per person in the yeaxis). Carefully label all relevant. points in you graphs. Figure 2: Solow Diagram with Output INVESTMENT, DEPRECIATION Y AND OUTPUT dk sY = = K K, CAPITAL,K

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