A country is described by the Solow growth model. It has a population growth rate of 5 percent and a rate of technological progress of 3 percent. It is currently at the steady state.
a) What is the country is growth rate for output and output per worker?
b) Assume that the country has to concede territory that contains 20% of its capital stock but only 2% of its population. What happens to its output and output per worker?
c) Draw the time path for the growth rates of output and output per worker. Make sure to start with the steady state value, then show the change when the territory loss occurs and what happens to the growth rates in the subsequent years