Imagine that one of the long-run effects of the current
COVID-19 pandemic is to make people more conservative such that their
savings rates increase.
A. Using the Solow model, describe what the short and long-run impacts
of this change are? Does consumption go up or down in the short
and long-runs? What happens to the capital stock per person? What
happens to growth rate of output per capita in the short and long-runs?
B. Now assume that an additional effect of the pandemic is that the population growth rate also increases. How does this impact your previous