Suppose that the economy is at full employment and is hit by a negative supply shock such as a large rise in oil prices.

y* ) and capital per capita ( k* ). Also determine the growth rate in y , k , output ( Y) and capital ( K ) at the steady state as a function of the model parameters; the savings rate ( s), the population growth rate ( n ) and the depreciation rate ( d ). [Instructions: Maximum 100 words.

(b)  Suppose there is an increase in the population rate to n’>n . Illustrate the new steady state equilibrium for output per capita ( y* ), capital per capita ( k* ) relative to that in (a). Also determine the growth rate in y , k , Y  and K  at the steady state as a function of the model parameters compared with that in (a). [Instructions: Maximum 100 words.

(c)   Given your answer in (b) comment on the effectiveness of population growth as a driver of increases in the steady state output per capita. Discuss other factors which could lead to rises in steady state output per capita in the neoclassical growth model. [Instructions: No diagram should be used here. Maximum 200 words.

QUESTION 2 .QUESTION 3 QUESTION 4 QUESTION 5

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