Question: 3.18. Increasing returns in a model with human capital. (This follows Lucas, 1988.) Suppose that Y(t) = K(t) [(1 - a)H(t), H(t) = Bay H(t),

3.18. Increasing returns in a model with human capital. (This follows Lucas, 1988.) Suppose that Y(t) = K(t) [(1 - a)H(t), H(t) = Bay H(t), and K (t) = SY(t), and assume a + > 1.36

(a) What is the growth rate of H?

(b) Does the economy converge to a balanced growth path? If so, what are the growth rates of K and Y on the balanced growth path?

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