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## In an economy that is closed and without the public sector, a single good is produced. This good has the characteristics of both investment

## In an economy that is closed and without the public sector, a single good is produced. This good has the characteristics of both investment and consumption goods. The following information is given regarding the economy in question. Production function Y = K1/2 L1/2. Savings function S = sY where 0 < s < 1 and savings turn into investments without any leakage. Net capital stock change is expressed with the equation K = I-dK. d is the depreciation rate of the capital stock. The labor force is growing at an external constant proportional rate (n). a) Find the basic equation of the neo classical economic growth model (SOLOW). b) Discuss (by drawing figures) whether the balance that the economy will reach within the framework of this model is stable (stable). c) Describe the effects of an investment support policy leading to an increase in savings rate (s) by drawing.

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