5 Climate change: integrated assessment model (IAM) Consider the IAM described in table 1. Unknowns/endogenous variables...

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5 Climate change: integrated assessment model (IAM) Consider the IAM described in table 1. Unknowns/endogenous variables Parameters / exogenous variables Table 1: IAM Y, A, D, Lt, Et, St, T Y₁ = D₁A₁ Lt A₁ = (1 + ŠA)* E₁ = ēY₁ St+1=St + Et T₁ = bs₁ L₁ = ī D₁ = T-d ŠA, ē, b, d, K, L, So Notation: Y: output, A,: stock of knowledge/technology, D₁: environmental damage, L,: labor, E₁: green house gas emissions, S, stock of green house gases in the atmosphere, T₁: temperature level, 8₁: knowl- edge/technology growth rate, e: emission intensity, b: temperature parameter, d: damage parameter, L: ex- ogenous labor supply, So: initial stock of green house gases in the atmosphere. 1. Explain briefly how economic activity affects the stock of emissions and the global temperature level in turn. 2. Explain briefly how a rising temperature level, in turn, affects the output. 3. Reduce the model to a system of two equations in the two unknowns Y, and S. 4. Derive the growth rate of output and the stock of emissions in the atmosphere along the balanced growth path. 5. Referring to your previous result, explain what force spurs economic growth and what force hinders economic growth. (20 points) 5 Climate change: integrated assessment model (IAM) Consider the IAM described in table 1. Unknowns/endogenous variables Parameters / exogenous variables Table 1: IAM Y, A, D, Lt, Et, St, T Y₁ = D₁A₁ Lt A₁ = (1 + ŠA)* E₁ = ēY₁ St+1=St + Et T₁ = bs₁ L₁ = ī D₁ = T-d ŠA, ē, b, d, K, L, So Notation: Y: output, A,: stock of knowledge/technology, D₁: environmental damage, L,: labor, E₁: green house gas emissions, S, stock of green house gases in the atmosphere, T₁: temperature level, 8₁: knowl- edge/technology growth rate, e: emission intensity, b: temperature parameter, d: damage parameter, L: ex- ogenous labor supply, So: initial stock of green house gases in the atmosphere. 1. Explain briefly how economic activity affects the stock of emissions and the global temperature level in turn. 2. Explain briefly how a rising temperature level, in turn, affects the output. 3. Reduce the model to a system of two equations in the two unknowns Y, and S. 4. Derive the growth rate of output and the stock of emissions in the atmosphere along the balanced growth path. 5. Referring to your previous result, explain what force spurs economic growth and what force hinders economic growth. (20 points)

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