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.
To answer this question, you need a scanner. Please draw your graph on a paper. Scan the paper and pload. You can also use PowerPoint or some other software to draw the graph, but a scanned PDF graph is preferred. Explain your graph.