Question: Suppose that z' increases and that K increases at the same time. Show that it is possible for the real interest rate to remain constant

Suppose that z' increases and that K increases at the same time. Show that it is possible for the real interest rate to remain constant as a result. What does this say about the model’s ability to explain the differences between poor and rich countries and to explain what happens as a country’s economy grows?

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The increase in z shifts the output demand curve to the right but has no effect on the output supply ... View full answer

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