Question: Consider the Solow model in a general form. Assume labor stands for both employment and popula- tion. Suppose the economy is initially at the

Consider the Solow model in a general form. Assume labor stands for both employment and popula- tion. Suppose the economy is initially at the steady state, and, at some time to, the population growth rate suddenly goes to zero. (A) Show the effects of the population growth rate on a phase portrait. Clearly mark all changes and processes. (B) Plot the dynamic paths for capital and output (both in per effective labor units). Clearly mark the time to. (C) Plot the dynamic path for the return on capital. Will capital become more or less profitable? Why? Give economic logic. (D) Plot the dynamic path for labor In L. Clearly mark the time to. (E) Plot the dynamic paths for capital In Lt, output In Y, and output per worker In Y/Lt. Clearly mark the time to. (F) A slower growth in the population is an empirical fact. Can this explain the slowdown in GDP? In GDP per worker? Give economic logic.

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To analyze the effects of a sudden change in the population growth rate in the Solow model lets go through each part of your question step by step A Phase Portrait In the Solow model the phase portrai... View full answer

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