Assume that the Puerto Rico economy is initially at the golden-rule level of per-capita capital stock. Suppose that Hurricane Maria wiped out 25% of the island’s capital stock and (even more tragically) 10% of the island’s labor force as the migrated to the US. Using the Solow growth model and assuming that the “current” savings rate, the deprecation rate, the rate of technological progress, and the rate of population growth do not change:

a. Compare the growth rates of K, k, L, Y, and y in the original (pre-hurricane) case and the new long-run equilibrium
b. Explain what monetary policy tools may be of help to jumpstart the economy after the hurricane using the following perspectives of the different schools of economic thought:
i. Classics
ii. Neoclassic
iii. Monetarists
iv. Keynesians
v. Austrian
vi. Real business cycle

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aAssuming that the current savings rate the depreciation rate the rate of technological progress and the rate of population growth do not change the g... View the full answer