Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Chapter 6, Problem 4RQ
To determine
Explain the concept of non-rivalry based on the key production function of Romer.
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in country A individuals are identical, each with one unit of labour to supply. The country produces only one commodity, food, according to the production function Y = zF(L , N), where L denotes land, N denotes labour, and z denotes TFP (Total Factor Productivity). This is a closed economy without any government, net export or savings, following the standard set-up of a Malthus model (similar to what we studied in Chapter 7).
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Macroeconomics (Fourth Edition)
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- Consider the basic Solow model with no population growth and no technological progress and a production function of the form F (K, H ), where H denotes the efficiency units of labor (human capital) given by where N is the set of all individuals in the population, and hi is the human capital of individual i. Assume that H is fixed. Suppose there are no human capital externalities and factor markets are competitive. (a) Calculate the steady-state equilibrium of this economy. (b) Prove that if 10% higher h at the individual level is associated with a% higher earnings, then a 10% increase in the country’s stock of human capital H will lead to a% increase in steadystate output. Compare this result to the immediate impact of an unanticipated 10% increase in H (i.e., consider the impact of a 10% increase in H with the stock of capital unchanged).arrow_forwardIn the productive externality based endogenous growth model there is no explicit production function for technological progress. True or Falsearrow_forwardWhat is the effect of an increase in total factor productivity on steady state population and consumption per worker in the Malthusian model?arrow_forward
- In the Malthusian model let the production function be y = 14-0.1L, the Death Rate function be 80-10y, and the Birth Rate be 35. Then the steady-state level of income (y*) isarrow_forwardRicardo’s economic growth model can be recognized as an endogenous model. True or Falsearrow_forwardIn the Galore model, if productivity (A) were to suddenly increase then both income (y) and population (L) would rise in the long-run. True Falsearrow_forward
- The output of an economy is characterized by a Cobb-Douglas production function with constant return to scale and an output elasticity with respect to capital equal to 0.3. Also given are the following parameters: 30% saving rate, 5% depreciation rate, 2% population growth rate, and the technology factor is 2. a). Find the capital-labour ratio, and also the output, consumption and investment on a per capita basis in the steady state equilibrium. b). Is a government policy that raises the saving rate to 40% socially desirable? Explain your answer with reference to a comparison of this new steady state equilibrium and the initial steady state equilibrium in a) above. c). If the initial capital-labour ratio is 30, is the economy operating efficiently in the sense that welfare cannot be improved? Explain concisely. What if the initial capital-labour ratio is 15? Again explain concisely.arrow_forwardA CES production function with physical and human capital Consider the CES production function in terms of physical capital, K, and human capital, H: where 0 a. Set up the Hamiltonian and find the first-order conditions. b. What is the optimal relation between K and H? Substitute this relation into the given production function to get a relation between Y and K. What does this “reduced-form” production function look like? c. What is the steady-state value of the ratio of physical to human capital, (K/H)∗? d. Describe the behavior of the economy over time if the initial condition is such that K(0)/H(0)? e. Suppose that the inequality restrictions IK ≥ 0 and IH ≥ 0 apply. How do these constraints affect the dynamics if the economy begins with K(0)/H(0)∗?arrow_forwardEvaluate the statement “a model with total-factor augmenting technological progress is identical to a model with labor augmenting technological progress.”arrow_forward
- Suppose that the per-worker production (labour productivity) function in South Korea is Y over L equals A open parentheses K over L close parentheses to the power of 0.4 end exponent open parentheses H over L close parentheses to the power of 0.6 end exponent. South Korea's labor productivity rises 6% per year, capital-labour ratio rises 5% per year, and human capital per worker rises 2% per year. This information suggests that total factor productivity grows at _________ per year.arrow_forwardWrite the production function in its simplest form (human capital being included in TFP) and explain the nature of each factor as well the theoretical value of the parameter Alpha. In other words what does the value of Alpha represent regarding the returns of each factors of production?arrow_forwardIn 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.arrow_forward
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