An economy has a per-capita production function y = Akahl-a, where A and a are fixed parameters,
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The economy's saving rate is s, and all saving is used to create physical capital, which depreciates at rate d. Workers acquire skills on the job by working with capital; the more capital with which they have to work, the more skills they acquire. We capture this idea by assuming that human capital per worker is always proportional to the amount of capital per worker, or h = Bk, where B is a fixed parameter.
Find the long-run growth rates of physical capital, human capital, and output in this economy.
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Related Book For
Macroeconomics
ISBN: 978-0321675606
6th Canadian Edition
Authors: Andrew B. Abel, Ben S. Bernanke, Dean Croushore, Ronald D. Kneebone
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