Question

Consider an economy that is in steady state according to the Solow model. Now suppose that a temporary foreign aid program builds a new road between two major cities. This change will:
a. Increase capital per worker permanently, followed by temporary positive growth.
b. Increase capital per worker permanently, followed by temporary negative growth.
c. Increase capital per worker temporarily, followed by temporary positive growth
d. Increase capital per worker temporarily, followed by temporary negative growth

Answer 1

Answer:

B

Explanation:

Increase capital per worker permanently, followed by temporary negative growth.

Meaning the capital per worker will increase but may be followed by a temporary decrease in the GDP

Answer 2

Answer:B

Explanation: