To face the impact of the pandemic the government has been forced to raise the deficit to very high level. Use the Solow growth model of and what you learned in chapter 3 to graphically illustrate the impact of a permanent government deficit increase on the steady-state capital–labor ratio and the steady-state level of output per worker. Explain in words why the curves move the way they did. Be sure to label the: a) axes; b) curves; c) initial steady-state levels; d) terminal steady-state levels; and e) the direction curves shift.
