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Unformatted text preview: following laws of motion, k s,t +1 = (1-δ s ) k st + x st (3) k e,t +1 = (1-δ e ) k et + x et (4) The labor inputs are unskilled labor u t and skilled labor s t . The function G is common to both sectors and is given by, G ( k st ,k et ,u t ,s t ) = k α st h μu σ t + (1-μ )( λk ρ et + (1-λ ) s ρ t ) σ ρ i 1-α σ (5) Total output, in consumption units, is deﬁned by, y t = c t + x st + x et q t = A t G ( k st ,k et ,u t ,s t ) (6) Note that this aggregation of output is possible when G is homogenous of degree 1 and common to both sectors. 1 1. Compute the share of skilled and unskilled labor. 2. What does it mean to have σ < 1 or σ > 1 ? 3. What does it mean to have ρ < 1 or ρ > 1 ? 4. Derive the expressions for the prices of factors of production. 2...
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- Spring '08
- Economics, Endogenous growth theory, Römer, Ket