Consider the Solow growth model in which we allow for long-run techno- logical progress. Assume N′ = (1 + n)N where N is the population (labor force) in the current period, N′ is the population (labor force) in the future period, and n is the pop- ulation growth rate. Assume that z = 1 for simplicity, and there is labour-augmenting technological progress. The production technology is given by Y = F(k,bN) where Y is the output of the consumption good, K is the current period capital stock, b denotes the number of units of “human capital” per worker, and bN is the “efficiency units” of labour. Assume that b′ = (1 + β)b where β > 0 is the growth rate in human capital. Consumers save a constant fraction, s, of their disposable income, where 0 < s < 1. The production function F exhibits constant returns to scale. (a)  Define a variable k as the quantity of capital per efficieny units of labor (as opposed to quantity of capital per labour). Using equilibrium c

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question

Consider the Solow growth model in which we allow for long-run techno- logical progress. Assume N′ = (1 + n)N where N is the population (labor force) in the current period, N′ is the population (labor force) in the future period, and n is the pop- ulation growth rate. Assume that z = 1 for simplicity, and there is labour-augmenting technological progress. The production technology is given by Y = F(k,bN) where Y is the output of the consumption good, K is the current period capital stock, b denotes the number of units of “human capital” per worker, and bN is the “efficiency units” of labour. Assume that b′ = (1 + β)b where β > 0 is the growth rate in human capital. Consumers save a constant fraction, s, of their disposable income, where 0 < s < 1. The production function F exhibits constant returns to scale.

  1. (a)  Define a variable k as the quantity of capital per efficieny units of labor (as opposed to quantity of capital per labour). Using equilibrium conditions derive the equa- tion how the k evolves over time. At what rate does aggregate output, aggregate consumption, aggregate investment, and per capita income grow at steady state?

  2. (b)  Suppose that β increases. Discuss the impact of this change on the quantity of capital per efficieny units of labor, k, in steady state and on the growth rate in per capita income. Does the economic well being increase? Explain.

  3. (c)  Suppose that n increases. Discuss the impact of this change on the quantity of capital per efficieny units of labor, k, in steady state and on the growth rate in per capita income. Does the economic well being increase?

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Total Cost
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education