What is the growth rate of knowledge in this economy

Reference no: EM13181978

Consider Romer's growth model of Chapter 6 and let A ?0 = 100, ?l = 0.06, z ? = 1/3000, and L ? = 1000.

a) What is the growth rate of output per person in this economy?

b) What is the initial level of output per person? What is the output per person in 100 years?

c) How do your answers in parts a,b change if the follwoing changes occur? A doubling of A ?0, a doubling of ?l, a doubling of the population L ?, and a doubling of z ?. (Note: Explain these changes one at a time).

d) If you could advocate for one of the changes above, which one would you choose? Why?

Problem 3: Consider the following simple variation of the Romer model. Yt = A1/2Lyt,

t At+1?At = z ?AtLat,

Lyt+Lat = L ?, Lat = ?lL ?.

In short, the only difference is the exponent of At in the (final good) production function, so that now there are diminishing returns to ideas in that sector.

a) Provide an economic interpretation for the first equation.

b) What is the growth rate of knowledge in this economy?

c) What is the growth rate of output per person in this economy?

Reference no: EM13181978

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