2. Suppose that there are two groups of people in the economy. In group j,individual i accumulates human capital according toH₂ = b(1-u) [aH₁ + (1 - a)H¹])where H is the individual i's human capital in the future period,0 < a < 1, H₂ is the individual's current human capital, andH¹ is average human capital across group j, (j = 1,2). All individuals in theeconomy choose the same u.A. What happens to incomes in groups 1 and 2 in the long run?B. What does this say about the role of human capital accumulation in incomeinequality?

Income inequality means the uneven distribution of income among the different sections of the…

2. Suppose that there are two groups of people in the economy. In group j, individual i accumulates human capital according to H = b(1-u) [aH, + (1 - a)H']) where H is the individual i's human capital in the future period, 0 < a < 1, H₂ is the individual's current human capital, and HI is average human capital across group j, (j = 1,2). All individuals in the economy choose the same u. A. What happens to incomes in groups 1 and 2 in the long run? B. What does this say about the role of human capital accumulation in income inequality?

2. Suppose that there are two groups of people in the economy. In group j, individual i accumulates human capital according to H = b(1-u) [aH, + (1 - a)H']) where H is the individual i's human capital in the future period, 0 < a < 1, H₂ is the individual's current human capital, and HI is average human capital across group j, (j = 1,2). All individuals in the economy choose the same u. A. What happens to incomes in groups 1 and 2 in the long run? B. What does this say about the role of human capital accumulation in income inequality?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

1. Solow review Recall that in equilibrium, the "birth and death of capital lines" cross so that: (n + d)k = sy = sk° a) Use some algebra to solve for equilibrium value of k. b) Compare this to r-code for k[t] in the loop of the function. What if any differences to do you see? c) Let a = .3, d = .1, and s = .25. What will be the ratio of steady state capital per person with a population growth rate of 0.25% to that of a population with growth rate 0.5%? (These is roughly in line with the difference between the two scenarios for 2010 to 2060.) Is this much of a difference? (1 sentence is fine.)
Assume that a country's production function is Y= AKº³Lº7. The ratio of capital to output is 3, the growth rate of output is 3 percent, and the depreciation rate is 4 percent. Capital is paid its marginal product. a. What is the marginal product of capital in this situation? (Hint: The marginal product of capital may be computed using calculus by differentiating the production function and using the capital-output ratio or by using the fact that capital's share equals MPK multiplied by K divided by Y.) b. If the economy is in a steady state, what must be the saving rate? (Hint: The saving rate multiplied by Y must provide for gross growth of (8 + n + g)K, where 8 is the depreciation rate.) c. If the economy decides to achieve the Golden Rule level of capital and actually reaches it, what will be the marginal product of capital? d. What must the saving rate be to achieve the Golden Rule level of capital?
In the Spesific Factors Model, assume that in Country A, "wheat" is produced by using land and labor, "leather" is produced by using capital and labor. Labor is defined as a ................................ ( mobile/ specific/ fixed) factor.
3) Suppose your per capita production function is given as y = k". Capital evolves according to the expression Ak = sy – (n +d)k, and your consumption function is c = (1– s)y. As usual, s is the savings rate, n is the - population growth rate and d is the capital depreciation rate. Imagine a foreign government decides to grant your country an investment subsidy in the form of b, which represents a constant fraction of domestic investment per capita (ia) such that irotal = ia + bia. In per capita terms the expenditure function with the subsidy is y = c + itotal and it is y = c + ia without the subsidy. a) Derive an expression for the steady state capital stock after the subsidy is granted. (Hint: Use the expenditure function with the subsidy to solve for sy then use the expenditure function without the subsidy to solve for domestic investment ia.) b) Use the Solow diagram to show living standards before and after the subsidy is granted. Explain the dynamic process towards the new steady…
Suppose labor productivity increased by 4% last year. If technological progress was 3%, by how much must have the capital-to-labor ratio increased? A) 3%. B) 2%. C) 1%. D) 0%.
4. Consider the following endogenous growth model: a representative household's life-time utility function is given as: pe C(t)!-o – 1 -dt. 1- 0 The production function is: Y (t) = AK(t)ª Hp(t)'-a where Hp(t) denotes human capital used in production. Human capital accumulation equation is: Н() — ВНE() — 6H(), where HE(t) is human capital devoted to education. In total we have HE(t) + Hp(t) H(t). Denote the fraction of human capital allocated to production by ø(t). Please go as far as you can to characterize the balanced growth path of the economy.
2. Throughout the text, a simplifying assumption was made in the production function model of economic growth: the capital share, α, is set equal to one-third. But this is not necessarily the case; indeed, α can be any number greater than zero and less than one. Consider two economies, H and L, with different capital shares, αH > αL. Which country will get more output for each unit of capital added? Explain.
2. An economy has a production function:Yt = 3(squaredKt)(squaredLt). The economy has a saving rate of 24 percent, a depreciation rate of 3 percent,and Lt = 1 for all period (no population growth). There is no technologicalprogress. (a) What is the per-worker production function, yt = f(kt)? Define yt =YtLtand kt =KtLt.(b) Find the equation for the evolution of capital per worker in terms of ktand kt+1. (c) Find the long-run growth rate of output per worker. Now the economy has the following production function:Yt = 3Kt but savings rate, depreciation rate, and population remain the same. (d) What is the per-worker production function, yt = f(kt)? Define yt =Yt/Lt (e) Find the equation for the evolution of capital per worker in terms of ktand kt+1. (f) Find the long-run growth rate of output per worker. (g) Explain why the economy with production function (2) explain persistent growth without the assumption of exogenous technologicalprogress. How does this differ from the economy…
-1 Consider the production function Y₁ = A₁K¹/2L1/2 where A is total factor productivity (TFP), It is the labour force, and K is physical capital. If the growth rate of capital per worker is 3% per year and the growth rate of output per worker is 3% per year, the growth rate of TFP is? 1.5% per year Unsure, it depends on the growth rate of the labour force 0.5% per year O 1.0% per year
4. Given the utility function U(C₁, dt+1) = Inc, + Blndt+1 and the production function F(K,L) = K*L¹-* where c, is the consumption of the young and dt+1 is the consumption of the old. The growth rate of population is given as Nt+1 = (1 + n)N₁ The constraints are given as follows: Ct + St = Wt dt+1 = Rt+1. St Find the steady-state values of per capita physical capital, saving and consumption.
1.1. Basic properties of growth rates. Use the fact that the growth rate of a variable equals the time derivative of its log to show: (a) The growth rate of the product of two variables equals the sum of their growth rates. That is, if Z(t) = X(t)Y(t), then Ż(t)/Z(t) = [X(t)/X(t)] + [Ÿ(t)/Y(t)]. (b) The growth rate of the ratio of two variables equals the difference of their growth rates. That is, if Z(t) = X(t)/Y(t), then Ż(t)/Z(t) = [X(t)/X(t)]-[Y(t)/Y(t)]. (c) If Z(t) = aX(t)a, then Ż(t)/Z(t) = aX(t)/X(t).
Question 2 Why is education and training rarely provided by firms? What government policies would encourage this provision? Use a model of endogenous growth to explain how encouraging more private investment in education would lead to increased growth rates. Assuming that private agents place less value on future consumption than current consumption, would ever higher growth rates be desirable? Outline the setup of (but do not attempt to solve) an endogenous growth model that incorporates both leisure and consumption in the utility function.