Economics Assume that the Puerto Rico economy is initially at the golden-rule level of per capita capital stock. Suppose that Hurricane Maria wiped out 25% of the island’s capital stock and (even more tragically) 10% of the island’s labor force as they migrated to the US. Using the Solow growth model and assuming that the “current” savings rate, the depreciation rate, the rate of technological progress, and the rate of population growth do not change: Show the short-run effects on the hurricane on K, k, L, Y and y. Show the process by which each of these variables, and the economy in general, adjust to a new long-run equilibrium Compare the growth rates of K, k, L, Y, and y in the original (pre-hurricane) case and the new long-run equilibrium Explain what monetary policy tools may be of help to jumpstart the economy after the hurricane using the following perspectives of the different schools of economic thought: i. Classics ii. Neoclassic
