Consider a hypothetical nation, Solowland, which were in the steady state. We consider a constant return to scale production function based on two production factors, labor and capital. The Solowland government recently took policy measures to support family with children. As a result, Solowland undergoes an increase in the population growth rate and it will remain high over time. Complete the table below for the effects (direction only, not size, such as "increased", "decreased", "unchanged", and "ambiguous") of higher population growth rate on
i. the wage of labor, w (hint: it is determined by marginal product of labor)
ii. the rental rate, r (hint: it is determined by marginal product of capital)
iii. capital per worker, k
iv. income per worker, y
v. consumption per worker, c
both initially (the instance of an increase in the growth rate of labor force) and in the new steady state, as compared to the previous steady state (before the increase in the population growth rate). Then, support your answer in words and/or figure. There have been and will be no changes in the savings rates, and depreciation rates. We disregard exogenous technological progress (g=0). (200 words)
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Initially
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New Steady State
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i. the wage of labor, w
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ii. the rental rate, r
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iii. capital per worker, k
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iv. income per worker, y
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v. consumption per worker, c
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