Consider a country that reached the capital per worker steady state condition. For geopolitical reasons, a strong immigration flow is expected in the next years, which will increase the yearly population growth of the country from 0% to 2%.

a. Explain the effects of the “population” shock on output and capital per worker and on the aggregate consumption of the country.

b. What could the government do in order to maintain the level of capital per worker? Motivate your answer.