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Use the Solow Growth Model to describe what happens to an economy if the government employs expansionary fiscal policy (increase in G, holding T constant).
Use the Solow Growth Model to describe what happens to an economy if the government employs expansionary fiscal policy (increase in G, holding T constant).
a. What happens to the steady level of capital, and subsequently the level of income per capita in our economy?
b. Assuming we were initially (before the stimulus) at the Golden Rule level of capital per worker, what were the effects of expansionary fiscal policy on consumption per capita? How do you know this?
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