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4. The effects of the German reunification in the Solow world. Imagine that West Germany in 1989 was well represented by the following differential
4. The effects of the German reunification in the Solow world. Imagine that West Germany in 1989 was well represented by the following differential equation. k =ska (8+n+g)k Let's assume that at that time West Germany was moving along a stable growth path, i.c. it was in steady state in units of effective labor, and the only effect of the reunification was a one time 25% increase, through large migrations from East Germany, of its population. a) Draw the phase diagram of the Solow model to trace the effects of the reunification. b) Sketch time path of the log of output per capita, the log of the wage and the return to capital (before, at the time of the reunification and after). Under our assumptions, who benefits from the reunification: the owners of capital or the workers? What about the workers remaining in East Germany?
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