Consider the continuous version Solow models. For each of the following two cases discuss the immediate impact on output per workerYLand total outputYafter the change in the economy. Show your results convincingly using the equations we used in class and sketch how both variables behave before and after the change (you should have the log of the variables on the vertical axis, time on the horizontal axis). You can assume that the economy was on the balanced growth path before the shock occurred.

I(t)=sY(t)

A(t)L(t)

capital per efficiency unit of labor. Derive the equation for the evolution ofk.

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1. (a)Suppose there is a permanent decline in the savings rate of a country.
2. (b)Suppose there is a permanent slowdown in the growth rate of technology (g) in the country.