Transition dynamics in the combined Solow-Romer model.

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Chapter 6.A, Problem 1E

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Transition dynamics in the combined Solow-Romer model.

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1- Equilibrium-defining equations in an IS-LM model are presented as follows: Y=C+I+G, C = C₁ + f(Y) = g(r), I = 1o — h(r), G = Go, and Mo = 3Y - i(r) where Co, Io, Go, Mo> 0 are exogenous variables, and f, g, h, i are continuously differentiable wwwwww and strictly increasing functions satisfying: Y = C₁ + f(Y) = g(r*) + Io − h(r) + Go Mo 3Yi(*). = for the unique equilibrium (rª,Y*). You should also assume that f' (Y) = (0, 1) (Why?). Find dr*/d Mo and dy* /d Go, and interpret your results.