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Government is able to permanently reduce its budget

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Suppose a government is able to permanently reduce its budget deficit. Use the Solow growth model to graphically illustrate the impact of a permanent government deficit reduction on the steady-state capita-labor ratio and the steady-state level of output per worker. Hint: reduction of government budget deficit means that overall savings rate rises in the economy.

Be sure to label the: 

a. axes; 

b. curves; 

c. initial steady-state levels; 

d. terminal steady-state levels; and 

e. the direction curves shift.  

To answer this question, you need a scanner. Please draw your graph on a paper. Scan the paper and pload. You can also use PowerPoint or some other software to draw the graph, but a scanned PDF graph is preferred. Explain your graph.

Reference no: EM13977337

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