Econ416PS2 - Theory of Economic Development Econ 416 Spring...

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Theory of Economic Development Econ 416, Spring 2010 Problem Set 2 NOTE: Please provide short answers to each question in the space provided! Due: At the beginning of lecture on April 1 1. Consider the Human Capital model from Ray, Chapter 4. Suppose production is given by: y=k .3 h .7 , where: k is physical capital and h is human capital. Assume that physical and human capital are accumulated at a constant, exogenous rate. Further, assume that there is no depreciation or population growth. (a) Suppose this economy devotes 30% of income to increasing the stock of physical capital and 10% of income to increasing the stock of human capital. Given these parameters, what will be the ratio of human to physical capital (in steady state)? (b) How fast will the stock of human capital grow in this model (in steady state)? How about the stock of physical capital? (c) Given this, what is the rate of growth in this economy (in steady state)? (d) Does this mean this economy will or will not experience long run growth in per capita income (in steady state)?
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2. Consider the following Lorenz Curves:
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