Assume we are at steady state in the Solow Model. Suddenly we have a significant technological advance.
1. Demonstrate, using properly labeled graph, how this improvement in technology affects the steady state levels of income per worker, consumption per worker, and the capital-labor ratio.
2. Explain why the steady state income per worker increase, decrease, does or stay the same?
3. Explain why steady state consumption per worker increase, decrease, does or stay the same?
4. Discuss why does the steady state capital-labor ratio increase, decrease, or stay the same?
5. Do any of your answers depend on what you assume about the golden rule capital-labor ratio? Why or why not?