Question
Assume that Brazilian and Argentinian economies are identical in every way except that Brazilian government is able to permanently reduce its budget deficit and Argentina
Assume that Brazilian and Argentinian economies are identical in every way except that Brazilian government is able to permanently reduce its budget deficit and Argentina does not change its fiscal policy. Use the Solow growth model of chapter 9 to graphically illustrate the impact of a permanent government deficit reduction on the steady-state capital per worker ratio and the steady-state level of output per worker of Brazil. Brazilian Government is confident and says: we managed to have a higher output growth rate than Argentina. Comment on his announcement.
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