Consider a one time change in immigration policy that immediately and permanently increases the level of the labour force in an economy. Suppose it rises permanently from L to L 0 . Assuming 2 the economy starts in its initial steady state, use the Solow model to explain what happens to the economy over time (transition dynamics) and in the long run (steady state). In particular, discuss what happens to the levels of capital, capital per worker, GDP and GDP per worker both at the new steady state as well as during the transition to the new steady state. You are not required to discuss how growth rates change over time (this is tricky). To answer this question use both the Solow diagram with total output, and diagrams with time on the horizontal axis and each of these variables on the vertical axis.
Consider a one time change in immigration policy that immediately and permanently increases the level of the labour force in an economy. Suppose it rises permanently from L to L 0 . Assuming 2 the economy starts in its initial steady state, use the Solow model to explain what happens to the economy over time (transition dynamics) and in the long run (steady state). In particular, discuss what happens to the levels of capital, capital per worker, GDP and GDP per worker both at the new steady state as well as during the transition to the new steady state. You are not required to discuss how growth rates change over time (this is tricky). To answer this question use both the Solow diagram with total output, and diagrams with time on the horizontal axis and each of these variables on the vertical axis.
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