ECON 101B: Section 12 Handout Date: 02/25/2011 Question 1 Prove each of the following statements about the steady state of the Solow model with population growth and technological progress. 2. Capital and labor each earn a constant share of an economy±s income. [Hint: Recall that in a ²exible price model the price of the factors of production (i.e. wage and rental price of capital) is equal to their marginal products.] 3. Total capital income and total labor income both grow at the rate of population growth plus the rate of technological progress, n + g . 4. The real rental price of capital is constant, and the real wage grows at the rate of technological progress g . Question 2 The amount of education the typical person receives varies substantially among countries. Suppose you were to compare a country with a highly educated labor force and a country with a less educated labor force. Assume that education a/ects only the
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