The Solow Model, as discussed in class, shows us how to support continuous economic growth through the economic force of technology. The production function, in its simplest form, would then be:

Y = F(A,K,L) = A(K (L)^1-)

K is the capital stock and L is the labor stock. Note that in class, I spoke of the production function in output, labor, and capital per capita (little y, l, and k); here we are looking at the function in aggregate units of measurement. Lets first define technological progress as a variable that first interacts with labor, such that the production function is:

Y = F(K,AL) = K(AL)^1-

(a) Describe the physical statement this function is making.

(b) Explain how a new technology in the above function could increase output without an increase in the labor or capital stocks. Provide a real-world example and draw a rough graph (yes, you can draw one on paper and scan).

Now lets define technological progress as a variable that interacts with capital, such that the production function is:

Y = F(K,AL) = (AK) L^1-

c) Explain how a new technology in this above function could increase output without an increase in the labor or capital stocks. Provide a real-world example. (Note: If your city is heavily reliant on manufacturing, youll want to have a good answer here.)