In the Solow model,
(a) Suppose there is a permanent increase in the price of oil (i.e. energy prices). If prior to the price increase the economy was in steady state, how should it a§ect output, the capital stock, savings and consumption in the long run?
(b) Suppose the price increase causes people to take better care of their machinery (to keep total running costs from rising too much) how and why might this reduce the impact of the oil price change?