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Assume the economy starts in steady state (k1 = 0 and a0 = 0) and is hit by a one time productivity shock of 1%
Assume the economy starts in steady state (k1 = 0 and a0 = 0) and is hit by a one time productivity shock of 1% ("A;1 = 0:01, "A;j = 0 for all j 6= 1). Explain why the capital stock, output, etc respond the way they do.
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