Question 7Based on the Solow model. a) What determines a stationary equilibrium in the model and why does the economy converge towards precisely that equilibrium in the long run? b) Assume that the savings ratio decreases. Illustrate and analyze the effect of this on GDP according to the model.c) How is consumption affected in the short and long term?

Question 8 (answered only if you do not have credit for the seminar part) In Applied Macroeconomics, Mats Persson discusses monetary policy in Sweden. a) Briefly describe how monetary policy changed during the 1990s. b) Explain the difference between the CPI and the CPIF. What is the direct effect of a reduced repo rate on the CPI? C) What is meant by the Riksbank having a flexible inflation target?