Government is able to permanently reduce its budget deficit

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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.

Reference no: EM131004787

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