Assume that initially capital and output per unit of effective labor are less than their balanced-growth-path values. Now suppose that in this situation, the saving rate rises permanently. Sketch the resulting path of the log of output per worker and what that path would have been if the saving rate had not changed. Explain your answer.
Assume that initially capital and output per unit of effective labor are less than their balanced-growth-path values. Now suppose that in this…
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