DSE 2018 Question 33: Endogenous growth and technical progress
Setup, from Q32 of the paper:
Consider an economy with no capital. The final good is produced with a linear labour technology Yt=At(1−λt)L0, where L0 is the constant labour force, 1−λt is the share in final-goods production and At is the technology index, which evolves as dtdA=λtL0At with A0>0. Suppose the relative price of new technology (in terms of the final good) is unity, and labour is allocated so that the value of marginal product of labour is identical across the two sectors. In this case, the equilibrium value of λt will be
Consider the economy of the previous problem, with final-good technology Yt=At(1−λt)L0 and technology evolving as dtdA=λtL0At. For any exogenously given value λt=λ0, the long-run balanced growth rate in this economy is
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Setup, from Q32 of the paper: Consider an economy with no capital. The final good is produced with a linear labour technology Yₜ = Aₜ(1 - λₜ)L₀, where L₀ is the constant labour force, 1 - λₜ is the share in final-goods production and Aₜ is the technology index, which evolves as dA/dt = λₜ L₀ Aₜ with A₀ > 0. Suppose the relative price of new technology (in terms of the final good) is unity, and labour is allocated so that the value of marginal product of labour is identical across the two sectors. In this case, the equilibrium value of λₜ will be Consider the economy of the previous problem, with final-good technology Yₜ = Aₜ(1 - λₜ)L₀ and technology evolving as dA/dt = λₜ L₀ Aₜ. For any exogenously given value λₜ = λ₀, the long-run balanced growth rate in this economy is (A) (1 - λ₀)L₀ (B) (1 - λ₀) (C) λ₀ (D) λ₀ L₀
Also written as: Setup, from Q32 of the paper: Consider an economy with no capital. The final good is produced with a linear labour technology Y_t = A_t(1 - lambda_t)L_0, where L_0 is the constant labour force, 1 - lambda_t is the share in final-goods production and A_t is the technology index, which evolves as dA/dt = lambda_t L_0 A_t with A_0 > 0. Suppose the relative price of new technology (in terms of the final good) is unity, and labour is allocated so that the value of marginal product of labour is identical across the two sectors. In this case, the equilibrium value of lambda_t will be Consider the economy of the previous problem, with final-good technology Y_t = A_t(1 - lambda_t)L_0 and technology evolving as dA/dt = lambda_t L_0 A_t. For any exogenously given value lambda_t = lambda_0, the long-run balanced growth rate in this economy is
Endogenous growth and technical progress has come up 25 times in 6 exams since 2016.
What this question tests
This question is on Endogenous growth: AK and R&D models, part of Endogenous growth and technical progress in Economics of Growth and Development.
Models where long-run growth comes from within the model, from capital or from ideas.
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