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1. Consider the Romer model: Yt=AtLytAt+1=zAtLatLat+Lyt=LLat=lL a) Assume that A0=10,l=0.01,z=0.00001,L=50,000. Find the growth rate of knowledge in the economy. (1 mark) Find the growth rate of output per person. (1 mark) Find output per person in period 2. (1 mark) b) Compare two economies: one with parameter values as in a) and the other one with the same parameter values except for the initial set of knowledge A0=5 and the labour share in the knowledge sector l=0.02. Briefly explain what will be the differences in the growth rates of knowledge, capital per worker and output per worker? Show the paths for output per worker on a graph. (4 marks) c) The government believes that the growth rate of output per worker is too low. What are the options available to the government within the Romer model that could increase this growth rate? (4 marks) 2. Comment on the following statement: "Both the Romer and Solow models can explain differences in growth rates across the countries through the principle of transition dynamics and sustained growth of knowledge". (4 marks) 1. Consider the Romer model: Yt=AtLytAt+1=zAtLatLat+Lyt=LLat=lL a) Assume that A0=10,l=0.01,z=0.00001,L=50,000. Find the growth rate of knowledge in the economy. (1 mark) Find the growth rate of output per person. (1 mark) Find output per person in period 2. (1 mark) b) Compare two economies: one with parameter values as in a) and the other one with the same parameter values except for the initial set of knowledge A0=5 and the labour share in the knowledge sector l=0.02. Briefly explain what will be the differences in the growth rates of knowledge, capital per worker and output per worker? Show the paths for output per worker on a graph. (4 marks) c) The government believes that the growth rate of output per worker is too low. What are the options available to the government within the Romer model that could increase this growth rate? (4 marks) 2. Comment on the following statement: "Both the Romer and Solow models can explain differences in growth rates across the countries through the principle of transition dynamics and sustained growth of knowledge". (4 marks)