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Questions › DSE › DSE 2018 › Q33
4 marks, −1Economics of Growth and Development › Endogenous growth and technical progress › Endogenous growth: AK and R&D modelsModerateabout 2 min

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)L0Y_t = A_t(1 - \lambda_t)L_0Yt​=At​(1−λt​)L0​, where L0L_0L0​ is the constant labour force, 1−λt1 - \lambda_t1−λt​ is the share in final-goods production and AtA_tAt​ is the technology index, which evolves as dAdt=λtL0At\frac{dA}{dt} = \lambda_t L_0 A_tdtdA​=λt​L0​At​ with A0>0A_0 > 0A0​>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\lambda_tλt​ will be

Consider the economy of the previous problem, with final-good technology Yt=At(1−λt)L0Y_t = A_t(1 - \lambda_t)L_0Yt​=At​(1−λt​)L0​ and technology evolving as dAdt=λtL0At\frac{dA}{dt} = \lambda_t L_0 A_tdtdA​=λt​L0​At​. For any exogenously given value λt=λ0\lambda_t = \lambda_0λt​=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.

TestStop has 10 past-paper questions on this subtopic; the nearest in year are below.

  • IIT JAM 2022 · Q28The technical change in the endogenous growth model is endogenized by
  • GATE 2023 · Q36In the context of endogenous growth theory, the Nobel laureate Paul Romer emphasized that "ideas" are
Practise Endogenous growth and technical progressMore on Endogenous growth: AK and R&D models

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Question from the DSE 2018 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.