Question

The Romer model consists of the following equations: Output production function: Y4 = A Lyt Idea production function: AA +1 = 2A Lat Resource constraint: Ly + Lat = L Allocation of labor: Lat = IL Suppose the parameters of the Romer model take the following values: Ao = 100, 1 = 0.06, 3 = 1/3000, L = 1000 18. What is the growth rate of output per person in this economy? a) 1% b) 2% c) 4% d) 10% 19. What is the initial level of output per person? What is the level of output per person after 100 years? a) 94 is the initial level of output per person and 681 after 100 years. b) 92 is the initial level of output per person and 682 after 100 years. c) 93 is the initial level of output per person and 684 after 100 years. d) 95 is the initial level of output per person and 686 after 100 years. 20. Now consider the following changes one at a time: a doubling of the research share , and a doubling of research productivity 2. How would your answers to questions 18) and 19) change in each of the two cases? a) Doubling of the research share l: 2% as the growth rate, 88 is the initial level output per per- son, and 4, 444.4 after 100 years, and regarding the doubling of research productivity 2: 4% as the growth rate, 96 is the initial level output per person, and 4, 747.5 after 100 years b) Doubling of the research share l: 3% as the growth rate, 90 is the initial level output per person, and 4, 444.4 after 100 years, and regarding the doubling of research productivity z: 4% as the growth rate, 98 is the initial level output per person, and 4, 747.5 after 100 years c) Doubling of the research share l: 4% as the growth rate, 88 is the initial level of output per person, and 4, 444.4 after 100 years, and regarding the doubling of research productivity z: 4% as the growth rate, 94 is the initial level output per person, and 4, 747.5 after 100 years d) Doubling of the research share l: 6% as the growth rate, 88 is the initial level output per person, and 4,544.4 after 100 years, and regarding the doubling of research productivity ż: 4% as the growth

Answer 1

18. Ans - b) 2%

Explanation:

Growth rate of output per person (G) = z*l*L*100 = (1/3000)*0.06*1000*100 = 2%

19. Ans - a) 94 is initial level of output....

Explanation:

Initial level of output per person, y  = A(1- l)

y = 100(1-0.06) = 94

Level of output per person after 100 years = y*(1+G)¹⁰⁰

= 94( 1+2%)¹⁰⁰

= 94( 1+0.02)¹⁰⁰

= 94*7.24

= 681

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