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QUESTION Indonesia's level of physical infrastructure per capita is much lower than that of many other Southeast Asian countries. Suppose the Indonesian government decides to
QUESTION
Indonesia's level of physical infrastructure per capita is much lower than that of many other Southeast Asian countries. Suppose the Indonesian government decides to undertake a massive, multi-year infrastructure spending program, to significantly increase its level of infrastructure per capita. Using the framework of the Solow-Swan model, explain what the government's new program should imply for Indonesia's level of GDP per capita in the long run, under each of the following scenarios:
- Scenario 1: There is no technological or total factor productivity growth in the economy.
- Scenario 2: There is ongoing technological or total factor productivity growth in the economy each year. Use a Solow-Swan diagram as part of your response to each of these scenarios.
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