Suppose a country enacts a tax policy that discourages
Suppose a country enacts a tax policy that discourages investment. As a result, the value of the parameter ¯s now goes to a smaller value ¯s ′ .
a) Assuming that the economy starts at its initial steady state, use the Solow model to explain what happens to the economy (after the change of ¯s) over time and in the long run.
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