According to the spending allocation model adecrease in


According to the spending allocation model, adecrease in government spending results in, among other things, anincrease in investment in the long run. Suppose the capitalstock is $1 trillion and a fall in government spending causes a $50billion rise in investment. Determine the effect of thechange in government purchases on long-run per capita outputgrowth, using the growth accounting formula. Assume that the coefficient on capital in the growth accounting formula is1/3).

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Econometrics: According to the spending allocation model adecrease in
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