Question 7. Explain how the economy adjusts from the old steady state to the new steady...

 

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Question 7. Explain how the economy adjusts from the old steady state to the new steady state. (Hint: illustrate the saddlepoint path associated with the new steady state in the phasediagram and recall that the economy always have to be on the current stable arm to avoid diverging). Question 7. Explain how the economy adjusts from the old steady state to the new steady state. (Hint: illustrate the saddlepoint path associated with the new steady state in the phasediagram and recall that the economy always have to be on the current stable arm to avoid diverging).

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In the context of economic dynamics and steady states the concept of a saddlepoint path refers to the transitional trajectory an economy follows when ... View the full answer