Policy reforms and growth. Suppose an economy, starting from an initial steady state, undertakes new policy reforms that raise its steady-state level of output per worker. For each of the following cases, calculate the proportion by which steady-state output per worker increases and, using the slope of the relationship shown in Figure 3.8, make a guess as to the amount by which the growth rate of GDP per worker will be higher during the next forty years. Assume a = 1>3 and c = .10.

(a) The level of total factor productivity, A is permanently doubled.

(b) The investment rate, sK, is permanently doubled.

(c) The average educational attainment of the labor force, u, is permanently increased by fi ve years.