Answered>Order 4773

Suppose we started out at the steady state capital stock in the basic Solow growth model. If there subsequently were an increase in the supply of loanable funds due to more favorable tax treatment of individual interest income, then (as we move to the new steady state over time) we would expect to see

A) economic growth rates turn negative in the short run and the nation’s capital stock to decrease from its current level.

B) economic growth rates turn positive in the short run and the nation’s capital stock to decrease from its current level.

C) economic growth rates turn negative in the short run and the nation’s capital stock to grow from its current level.

D) economic growth rates turn positive in the short run and the nation’s capital stock to grow from its current level.

E) economic growth rates stay the same in the short run and the nation’s capital stock to grow from its current level.