Economics 304 Homework #12 – Answer Sheet complete solution correct answer key

Economics 304 Homework #12 – Answer Sheet 1. According to the economic growth theory that we have studied, how would each of the following events affect per capita consumption in the long-run (i.e., after return to the steady state).. Illustrate graphically and explain. In all of the parts, we can assume that the rate of saving is less than the golden rule level of saving, so that a reduction in steady-state output per worker leads to a reduction in steady-state consumption per worker. a. A terrorist attack destroys a portion of the nation’s capital stock. Assume that the economy begins (pre-attack) in the steady state. The destruction of a portion of the nation’s capital will reduce the capital-labor ratio to a level that is below the steady-state level. (We are assuming here that the population and labor force were not reduced signi...

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