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Suppose that the level of technology is constant. Then it jumps to a new, higher constant...

Suppose that the level of technology is constant. Then it jumps to a new, higher constant level.

  1. How does this technological jump affect output per worker, holding the capital-labour ratio constant?

  2. Show the new steady-state equilibrium. What has happened to per worker saving and the capital-labour ratio? What happens to output per worker?

  3. Chart the time path of the adjustment to the new steady state. Does investment rise during transition? If so, is this effect temporary?

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Answer #1

If during a production process the capital and labour remains the same, but the technology level moves upward then probably the production would rise. Holding the capital to labour ratio same the output per worker would increase, as with the better technology the production level rises.

The equilibrium would move upward with growth in supply due to better technology. Also the saving of the worker would reduce as more workers would get unemployed as newer tech. Needs skilled labour also less labour. Therefore the capital to labour ratio would rise, as more capital would be invested in tech. Machinery and less requirement would be there for labour.

The investments would rise.

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