2 Endogenous Growth Theory (5 marks) In the AK model with production function Y = AK....
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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.
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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:
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