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Consider a closed economy over years where initially the economy is operating along a balanced growth path The production function for aggregate output (Y) is
Consider a closed economy over years where initially the economy is operating along a balanced growth path The production function for aggregate output (Y) is Output, Y (natural log) Y = V(K)(AN), where K = capital, AN = effective labor. The economy has a growth rate of the number or workers equivalent to 3% per year, a rate of technological progress at 5% per year, a capital stock that gets depreciated at the rate of 12% per year, and an aggregate saving rate at 20% per year. In this economy, the saving rate changes to 30%, leading to an increase in investment in capital. Given that in the 4th year Y = 2500, K = 2500, and AN = 2500, and from the 5th year onward capital per effective worker follows the following trend. Time Period Capital per Effective Labor 1.4 6 2 7 2.4 8 2.7 9 2.9 10- 9.8- 9.6 9.4- 9.21 9- 8.8- 8.6- 8.4- 8.2 8 7.8 7.6 7.4 72 0 1 2 3 5 6 5 g 10 11 12 Time Graphically plot the transition in output due to an increase in saving rate. (Take natural log values of output and round up to one decimal.) Using the multipoint curve drawing tool, calculate and plot the transition in output from period 4 to period 8 at required points. Carefully follow the instructions above and only draw the required objects
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