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(II) Consider the version of the Solow growth model without technological change covered in
lecture. Assume that one country has been at the BGP for many years and suddenly at time tthere
is a permanent decrease in the savings rate. Show how the economy will adjust to a new BGP by
working with the modified system (per capita/worker variables). Show how capital per worker
adjusts to the new Steady State level and how its growth rate changes over time.

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(II) Consider the version of the Solow growth model without technologi.pdf

  • 1. (II) Consider the version of the Solow growth model without technological change covered in lecture. Assume that one country has been at the BGP for many years and suddenly at time tthere is a permanent decrease in the savings rate. Show how the economy will adjust to a new BGP by working with the modified system (per capita/worker variables). Show how capital per worker adjusts to the new Steady State level and how its growth rate changes over time.