This question asks you to base your answer on the graphical presentation of the Solow model to determine the effect ofa permanent reduction in government deficiton the steady-state values of a number of per-worker variables.

a. Which curve shifts and what is the direction of the shift as a result of the permanent reduction

in government deficit? Explain.

b. What is the effect of the shift in part (a) on the steady-state level of capital per effective labor?

Explain.

c. What is the effect on steady-state growth rate of capital per effective labor? Explain.

d. What is the effect on the steady-state level of (raw) output? Explain.

e. What is the effect on steady-state growth rate of (raw) output? Explain.

f. What is the steady-state growth rate of capital/output ratio? Explain.