1.In the context of the Solow model, explain briefly how the current level of capital k affects the change in the level of capital from today to tomorrow (i.e., if k were higher, in what ways would that affect ∆k). Be sure to explain all of the effects.
2.Suppose domestic inflation is positive (π > 0), foreign inflation is zero (π ∗ = 0), and the central bank is operating a fixed exchange rate (%∆e = 0). What, if anything, will happen to the real exchange rate ? Be sure to explain in words what is going on.
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