Suppose the government passes significant tax cuts on household income but does not reduce

spending, so that the government budget deficit is larger. Use the Solow growth model of

Chapter 9 to graphically illustrate the impact of the tax cut on the steady-state capital-labour

ratio and the steady-state level of output per worker. Be sure to label the:

i. axes

ii. curves

iii. initial steady-state levels

iv. terminal steady-state levels

v. the direction curves shift.