This question asks you to analyze in more detail the two-sector endogenous growth model presented in the text.
a. Rewrite the production function for manufactured goods in terms of output per effective worker and capital per effective worker.
b. In this economy, what is break-even investment (the amount of investment needed to keep capital per effective worker constant)?
c. Write down the equation of motion for k, which shows D k as saving minus break-even investment. Use this equation to draw a graph showing the determination of steady-state k. d. In this economy, what is the steady-state growth rate of output per worker Y/L? How do the saving rate s and the fraction of the labour force in universities u affect this steady-state growth rate?
e. Using your graph, show the impact of an increase in u. Describe both the immediate and the steady-state effects.
f. Based on your analysis, is an increase in u an unambiguously good thing for the economy? Explain.