2. In recent years waves of immigrants arrived in Europe leading to discussions about proper immigration policies and the rise of anti-immigration parties in many countries. While policies differ with respect to integration of migrants into the labor market, assume for this question that immigrants change N and nothing else changes. The economy is otherwise described by the simple Solow model.

(a) Illustrate graphically how this shock affects the economy. Draw a graph with the production function, investment function and depreciation function - all in per-worker terms. Show the initial steady state, include the shock to the economy and illustrate the movement of the economy as it adjusts to the long-run equilibrium. Make sure to label each axis, curve and equilibrium outcome clearly!

(b) What will initially happen to the marginal product of capital in this economy? Compare the situation in steady state before the shock and the situation immediately after the shock. Explain briefly!

(c) What will happen to standards of living in this economy? Assume that standards of living can be measured as output per worker. Explain briefly. (d) Draw a time path for consumption per worker. Show the situation before the shock (before t0), what happens due to the immigration shock at t0 and the path after the shock, all in the same graph.