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Problem_Set_2_Solutions

# Problem_Set_2_Solutions - Economics W3213 Spring 2010 Bruce...

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Solution: False This is directly from Chapter 6. page 141. The growth rate in the Romer model is determined by the equation ° A t A t = ± z ± l ± N = ± g: Educational policies that tend to increase the fraction of the labor force working in the sector producing °nal good implies an increase in 1 ° ± l and therefore a fall in ± l . The growth rate must fall in the Romer economy as labor resources are moved out of the ideas producing sector into the °nal goods sector. 3. Consider a Solow model with Cobb-Douglas production function Y t = AK ° t L 1 ° ° t where 0 < ° < 1 . Cross-country di/erences in per capita incomes between rich and poor countries can be shown to depend only upon the di/erence in total factor productivities and the di/erence in saving/investment rates (assuming identical production functions, population growth rates, and depreciation rates.) A model in which the elasticity of out-
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