Question: Question 2: Transition Dynamics in the Romer-Solow Model (4 points) Consider the textbook version of the Romer-Solow model, i.e. the Romer model that includes the

Question 2: Transition Dynamics in the Romer-Solow Model (4 points) Consider

Question 2: Transition Dynamics in the Romer-Solow Model (4 points) Consider the textbook version of the Romer-Solow model, i.e. the Romer model that includes the Solow's capital accumulation equation (more details can be found in section 6.9 of the Jones textbook). Suppose there is an increase in the share of workers in the research sector, l. A. How is the balanced growth path affected? (Hint: level vs. slope effect) B. Graphically illustrate and explain the transition dynamics towards the new BGP. What is the role of capital accumulation in your reasoning? (Hint: think about the dynamics of the growth rate and the convergence principle)

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