Question
Suppose that due to the pandemic, the saving and investment in Canada falls. As a result, suppose the investment rate decreases temporarily from s to
Suppose that due to the pandemic, the saving and investment in Canada falls. As a result, suppose the investment rate decreases temporarily from s to s 0 (where s > s0 ). After some years, however, the savings rate goes back to the previous level, as things go back to normal (for instance whenever a trustworthy vaccine is discovered). Examine the change in the Solow model with technological progress, assuming that the economy begins in steady state. Sketch a graph of how (the natural log of) output per worker evolves over time with and without the pandemic. Make a similar graph for the growth rate of output per worker. Is Canada poorer because of the pandemic? Is the growth rate in Canada in the long-run affected because of the pandemic
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