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Question 1 Supposel a Solow economy is initially at its steady state k*, and suddenly is hit by a decrease in the depreciation rate 8,
Question 1 Supposel a Solow economy is initially at its steady state k*, and suddenly is hit by a decrease in the depreciation rate 8, from 8 to 81. This change does not alter any of the other exogenous parameters in the model a. Depict this situation in a graph b. What happens to steady state level of capital per capita in this situation? What happens to the level of capital per capita over time? Depict this in a graph and explain intuitively. Question 2. Suppose a Solow economy is initially at its steady state k*, and suddenly gets a large gift of foreign aid in the form of capital. This increases the level of capital per capita to a level of k1. This foreign aid gift does not change any of the exogenous parameters in the model a. Depict this situation in a graph b. What happens to steady state level of capital per capita in this situation? What happens to the level of capital per capita over time? Depict this in a graph and explain intuitively
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