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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...

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Problem 2 : Subsidy in the Solow Mode
Consider the standard Solow growth model with population growing at rate in and Cobb
Douglas technology with capital share parameter a . Suppose that the government decides to
subsidize investments at rate I Le . for each unit invested in the economy the government adds
. units . You can ignore the issue of how to finance this subsidy
a ) How is the steady - state capital per worker let affected ?
b ) How would the government set A so to induce the economy to converge to the golden rule
level of capital ?

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