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Suppose the labour force and (physical) capital stock are growing at a rate of 2.5% and 3% respectively, and the labour share of income is 60%. In addition, the total factor productivity is increasing at 0.8%.
Note: All the growth rates are annual rates.
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Suppose the growth rate of total factor productivity increases by 50% at time T0, what happens to the price level at time T0? Explain in words.
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Read the rules of the game, the overview and the almanac for the Development Game "Settlers of Catan"
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