Question
Economic Growth: War and Economic Recovery Imperial forces have decided to attack Alderaan (I hope you are also a fan of Star Wars). The attack
Economic Growth: War and Economic Recovery Imperial forces have decided to attack Alderaan (I hope you are also a fan of Star Wars). The attack destroyed most of the capital own by the Rebel Alliance, the Secretary of the Cabinet, Senator Bail Organa, have requested your advice in order to restore the Galactic Republic. 1. Use the Solow-Swan Model to explain the Cabinet the effects of the destruction of capital on output, consumption, real wages, and real rental rates. 2. Using the Solow-Swan Diagram explain to the Cabinet why the Rebel Alliance is expected to growth faster after the destruction capital. 3. Give one economic explanation for why growth could be even faster after the destruction of capital than the basic model predicts. Use the basic model or extend the basic model to justify your explanation. 4. The Cabinet have asked you to provide information about a saving rate that may maximize rebels consumption. Is there an optimal saving / investment rate(s) in the Solow-Swan model?
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