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Unformatted text preview: f , s , n , or d , the steady state will be the same as it was before the war. c. A discovery of massive new oil reserves leads to a permanent decrease in energy prices. A permanent decrease in energy prices permanently increases productivity, so f shifts up from f to f 1 . Since workers are more productive, the economy is able to maintain higher a level of capital per worker, so the steady state level of capital increases from k * to k * 1 . As a result, output per worker (and therefore consumption per worker) increases for two reasons: (1) increased capital per worker, and (2) increased productivity of capital and labor. k * Per capita investment k sf ( k ) ( n+d ) k k k * 1 k * Per capita investment k sf ( k ) ( n+d ) k sf 1 ( k )...
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- Spring '10