1. You can adapt the Romer model so that it uses the Solow model's law of motion for K to make K endogenous. Paul Romer was the first part to do this so this combined Romer-Solow model is also often called a Romer model.

This variant of the model has a balanced growth path but GDP per worker grows both because TFP is increasing and because there is more capital per worker. As a result you would expect it to grow faster than in the model from class where g_y = zL.

Build a spreadsheet for the Romer model from class with K governed by the Solow model law of motion. Use these parameter values: z = 0.01, K₀ = 16, L = 50, A₀ = 1, = 0.1, = 0.05, s = 0.1, and no labor force growth (n = 0). The GDP will grow rapidly at first like in the Solow model then slow down and approach a balanced growth path. The growth rate of A will be 5% (zL) but y will grow faster.

What is the growth rate of y on the balanced growth path? (Give your answer as a decimal.)