Consider the Romer model of an economy we discussed in Chapter 7. Production function of the...

 

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Consider the Romer model of an economy we discussed in Chapter 7. Production function of the consumption good is given by Y = A Lyt. Production function of the new ideas is given by AAt+1=2A Lat. The proportion of the labor force L employed in reaserch activities is given by 1, with it, and Lat+Lyt = L. a. Suppose that the parameters take the following values: Ao = 1, T=0.02, z = 0.01, and L=100. What is the initial level of output per person? What is the growth rate of output per person in the economy? b. Consider an alternative economy, identical to the one described in part a), but the research share of labor twice as high (i.e. I-0.04). What is the initial level of output per person in this economy? What is the growth rate of output? How long will it take for the economy in part b) to reach the level of output per person higher that that of the economy in part a)? You can solve this part either algebraically, or by simulating these numbers on a computer, but you should describe how you obtained your answer. Consider the Romer model of an economy we discussed in Chapter 7. Production function of the consumption good is given by Y = A Lyt. Production function of the new ideas is given by AAt+1=2A Lat. The proportion of the labor force L employed in reaserch activities is given by 1, with it, and Lat+Lyt = L. a. Suppose that the parameters take the following values: Ao = 1, T=0.02, z = 0.01, and L=100. What is the initial level of output per person? What is the growth rate of output per person in the economy? b. Consider an alternative economy, identical to the one described in part a), but the research share of labor twice as high (i.e. I-0.04). What is the initial level of output per person in this economy? What is the growth rate of output? How long will it take for the economy in part b) to reach the level of output per person higher that that of the economy in part a)? You can solve this part either algebraically, or by simulating these numbers on a computer, but you should describe how you obtained your answer.

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a To find the initial level of output per person we need to substitute the given values into the production function Given A0 1 barl 002 barz 001 and ... View the full answer