# Question: consider an economy that follows the dynamic as in the...

###### Question details

Consider an economy that follows the dynamic as in the Solow
model developed in class, with constant L. Suppose a country enacts
a tax policy that discourages investment, and the policy reduces
the investment rate immediately and permanently from s to s1.
Assuming the economy starts in its initial steady state, use the
Solow model to explain what happens to the economy over time and in
the long run. Draw a graph showing how output evolves over time
(put 𝒀𝒀𝒕𝒕 on the vertical axis and time in the horizontal axis). Do
the same for capital and consumption.