Consider the
following growth model and answer the questions below.
(1) .0/msohtmlclip1/01/clip_image002.png”>
(2) .0/msohtmlclip1/01/clip_image004.png”>, .0/msohtmlclip1/01/clip_image006.png”>
(3) .0/msohtmlclip1/01/clip_image008.png”> .0/msohtmlclip1/01/clip_image010.png”>
(4) .0/msohtmlclip1/01/clip_image012.png”>, .0/msohtmlclip1/01/clip_image014.png”>
(5) .0/msohtmlclip1/01/clip_image016.png”> .0/msohtmlclip1/01/clip_image018.png”>
(6) .0/msohtmlclip1/01/clip_image020.png”> .0/msohtmlclip1/01/clip_image022.png”>
Endogenous
(6): .0/msohtmlclip1/01/clip_image024.png”>,.0/msohtmlclip1/01/clip_image026.png”>,.0/msohtmlclip1/01/clip_image028.png”>,.0/msohtmlclip1/01/clip_image030.png”>,.0/msohtmlclip1/01/clip_image032.png”>,.0/msohtmlclip1/01/clip_image034.png”>
Predetermined
(3): .0/msohtmlclip1/01/clip_image036.png”>,.0/msohtmlclip1/01/clip_image038.png”>,.0/msohtmlclip1/01/clip_image040.png”>
Initial Conditions
(3): .0/msohtmlclip1/01/clip_image042.png”>,.0/msohtmlclip1/01/clip_image044.png”>
Exogenous (5):.0/msohtmlclip1/01/clip_image046.png”>,.0/msohtmlclip1/01/clip_image048.png”>,.0/msohtmlclip1/01/clip_image050.png”>,.0/msohtmlclip1/01/clip_image052.png”>,.0/msohtmlclip1/01/clip_image054.png”>
1.
If the
variable.0/msohtmlclip1/01/clip_image040.png”> denotes the
level of technology (or know-how), what does the variable.0/msohtmlclip1/01/clip_image048.png”> denote?
2.
Show
the production function (3) exhibits constant returns to scale.
3.
Reduce
this model to an intensive form model, and present the classification of
variables for your intensive form model.
Hint: Define.0/msohtmlclip1/01/clip_image058.png”> and.0/msohtmlclip1/01/clip_image060.png”>.
4.
Find
the (non-zero) steady state âper capitaâ capital stock level.0/msohtmlclip1/01/clip_image058.png”> for your
intensive form model.
5.
Use a
diagram to illustrate the comparative static multipliers.0/msohtmlclip1/01/clip_image062.png”> and.0/msohtmlclip1/01/clip_image064.png”>.
6.
Using
only words, explain why an increase in the savings rate provides a one-time improvement
in the living standard.
7.
Use
the knowledge that, in a steady state, the quantity.0/msohtmlclip1/01/clip_image060.png”> remains
constant to show that the growth rate in the living standard.0/msohtmlclip1/01/clip_image066.png”> in a steady
state is equal to the rate.0/msohtmlclip1/01/clip_image048.png”>of improvement in technology.
8.
Using
only words, explain why the improvement in the average living standard in the
U.S. has occurred more so because of technological change than other
factors.
