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Question 2 [15 points in total, 5 points each]: Consider the Solow model with population growth and technological progress. The population grows at rate of
Question 2 [15 points in total, 5 points each]: Consider the Solow model with population growth and technological progress. The population grows at rate of and the technology grows at rate of . The depreciation rate of capital is . The Cobb Douglas aggregate production function is given as Y=200Kd[(1u)L]g where Y,K, L, d ,g and u refers to aggregate output, aggregate capital stock, aggregate labor, output elasticity with respect to capital, output elasticity with respect to labor, and natural rate of unemployment, respectively. Draw a well-labeled graph that illustrates what happens to steady-state capital per worker, income per worker and consumption per worker over time in response to each of the following exogenous changes. (Hint: Plot per worker variables on y-axis against time on x-axis to show both their immediate and gradual responses to the relevant exogenous change) a. The establishment of a computerized national job bank by the government b. A significant decline in the maintenance and repair expenses of machinery and equipment c. A permanent reduction in transportation costs
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