Problem 2: Subsidy in the Solow Model Consider the standard Solow growth model with population growing at rate n and Cobb— Douglas technology with...
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Problem 2: Subsidy in the Solow Model Consider the standard Solow growth model with population growing at rate n and Cobb— Douglas technology with capital share parameter oz. Suppose that the government decides to subsidize investments at rate 0, i.e. for each unit invested in the economy the government adds 0 units. You can ignore the issue of how to finance this subsidy. a) How is the steady—state capital per worker [9* affected? b) How would the government set 0 so to induce the economy to converge to the golden—rule level of capital?

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Subject: Business, Economics
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