Determine the effect of the change in govt purchases

Reference no: EM13244668

According to the spending allocation model, adecrease in government spending results in, among other things, anincrease in investment in the long run. Suppose the capitalstock is $1 trillion and a fall in government spending causes a $50billion rise in investment. Determine the effect of thechange in government purchases on long-run per capita outputgrowth, using the growth accounting formula. Assume that the coefficient on capital in the growth accounting formula is1/3).

Reference no: EM13244668

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