1. Solow model.

Consider the standard Solow growth model with technological progress (g) and pop-

ulation growth (n), where g and n are positive and exogenous. Assume that the

economy is initially on the balance growth path. Suddenly there is a one-time unex-

pected and permanent downward jump in the number of workers due to a government

repatriation program of illegal immigrants.

Explain both the immediate and transitional effect of this jump on capital per ef-

fective worker and output per effective worker. Draw the time path of output per

capita and compare it to the case without the repatriation program.

Fig: 1