2 Endogenous Growth Theory (5 marks) In the AK model with production function Y = AK....
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
2 Endogenous Growth Theory (5 marks) In the AK model with production function Y = AK. Assume g = = 0 and population is fixed. The saving rate is s and the depreciate rate of capital of 8. 1 a. What is the growth rate of capital (K) and output (Y)? b. Under what conditions can the economy experience perpetual (positive) growth? c. What is the key factor that drives the perpetual growth? Explain the intuition. (hint: compare the AK model with the Solow model) In the endogenous growth model with uncompensated knowledge spillover (Romer, 1986), the production is specified as Y = BK L¹-a where B = AK¹-a d. What are the private (marginal) return and the social return to capital, respectively (normalize population L to one)? e. Which one is higher, the private or the social return to capital? Explain the intuition. 2 Endogenous Growth Theory (5 marks) In the AK model with production function Y = AK. Assume g = = 0 and population is fixed. The saving rate is s and the depreciate rate of capital of 8. 1 a. What is the growth rate of capital (K) and output (Y)? b. Under what conditions can the economy experience perpetual (positive) growth? c. What is the key factor that drives the perpetual growth? Explain the intuition. (hint: compare the AK model with the Solow model) In the endogenous growth model with uncompensated knowledge spillover (Romer, 1986), the production is specified as Y = BK L¹-a where B = AK¹-a d. What are the private (marginal) return and the social return to capital, respectively (normalize population L to one)? e. Which one is higher, the private or the social return to capital? Explain the intuition.
Expert Answer:
Answer rating: 100% (QA)
a The growth rate of capital and output will both be equal to the saving rate s minus the depreciati... View the full answer
Related Book For
Macroeconomics
ISBN: 978-0321675606
6th Canadian Edition
Authors: Andrew B. Abel, Ben S. Bernanke, Dean Croushore, Ronald D. Kneebone
Posted Date:
Students also viewed these economics questions
-
QUIZ... Let D be a poset and let f : D D be a monotone function. (i) Give the definition of the least pre-fixed point, fix (f), of f. Show that fix (f) is a fixed point of f. [5 marks] (ii) Show that...
-
Let A, B be sets. Define: (a) the Cartesian product (A B) (b) the set of relations R between A and B (c) the identity relation A on the set A [3 marks] Suppose S, T are relations between A and B, and...
-
Read the Speech of Martin Luther King, Jr.'s "I Have a Dream" and answer the question: Kin, makes liberal use of metaphorand metaphorical imagery in his speech. (Glossary: Figures of Speech) Choose a...
-
Astronomers often use large mirrors in their telescopes to gather as much light as possible from faint distant objects. Should the mirror in their telescopes be concave or convex? Explain.
-
In each of the diagrams below, compare shape B with shape A. a. Decide whether B is an enlargement of A. If not explain why not. b. If B is an enlargement of A, calculate the scale factor of...
-
Consider the following cash flow profile and assume MARR is 10 percent/year and the finance rate is 4 percent/year. a. Determine the MIRR for this project. b. Is this project economically attractive?...
-
Pam Erickson Construction Company changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2008. For tax purposes, the...
-
Matt has worked as an electrician for 24 years with the same company and is about to retire. He has a final-earnings pension plan. His pension benefit will be 1% per year based on the average of his...
-
Crane Housing PLC has a current ratio of 2.5 and total current assets worth 5 million. Crane housing also has some long-term borrowings where the bank has stipulated that the current ratio of the...
-
What are the three broad categories of safeguards identified in Part 1 of the Code, in the Conceptual Framework for members in public practice? Which category of safeguard cannot be relied upon, by...
-
Do you agree that selection of a top-quality candidate is a critical process in organizations, or do you think intensive training after the person is selected is more valuable? Explain your answer.
-
Suppose that the government levies a tax on oil companies equal to a proportion of the value of the companys oil reserves. (The government assures the firms that the tax is for one time only.)...
-
What options do you see as alternatives to recruiting globally for knowledge-based jobs in the coming years?
-
Would you rather have higher pay or better benefits? Why?
-
The U.S. residential construction contracting industry includes about 160,000 establishments (single-location companies and units of multilocation companies) with annual revenue of about $425...
-
Solving the equation e, + xp, = 0 by the method of characteristics, the characteristic curyes are defined by the ODE
-
Medi-Exam Health Services, Inc. (MEHS), located in a major metropolitan area, provides annual physical screening examinations, including a routine physical, EKG, and blood and urine tests. MEUS's...
-
Appendix 3.A shows how the growth-rate form of Okun's law can be derived from Eq. (3.7). As part of that derivation, it is assumed that the natural unemployment rate is constant (AM = 0) and the...
-
Consider an economy in long-run equilibrium with an inflation rate n of 12% (0.12) per year and a natural unemployment rate u of 6% (0.06). The expectations-augmented Phillips curve is Assume that...
-
What are the three functions of money? How does each function contribute to a more smoothly operating economy?
-
Rework Example 13.6 if the overhead line and cable are interchanged. That is, \(\mathrm{Z}_{\mathrm{A}}=100 \Omega, v_{\mathrm{A}}=2 \times 10^{8} \mathrm{~m} / \mathrm{s}, l_{\mathrm{A}}=20...
-
Take the \(z\)-transform of (6.2.6) and show that \(\mathbf{X}(z)=\mathbf{G}(z) \mathbf{Y}(z)\), where \(\mathbf{G}(z)=(z \mathbf{U}-\mathbf{M})^{-1} \mathbf{D}^{-1}\) and \(\mathbf{U}\) is the unit...
-
When formulating marketing strategy, one of the issues a company must consider is whether or not to pursue international markets. Although international markets present increased marketing...
Study smarter with the SolutionInn App