Endoegnous Models

Question 1

Ak model overview
function
Assumption

Answer 1

assume that f(k,n)=capital K and that z =A
so Y=AK K has 100 percent of the output the difference is that there is no diminishing marginal return hence increase in capital increase the outpu with no steady state

Question 2

Learning by doing function and assumption

Answer 2

learning by doing avoid the extreme assumption of the AK model
each firm function = Y=zf(Ki,JNi)
J=tK as K increases J increases proportionally if t is 1
assume that the increase in the capital increases the by-product of skills of labor assuming that knowledge is nonexcludable the increase in one firm increase in all other
and nonrival one firm applying the knowledge does not reduce the marginal benefit for the following firm
GDP = Y=zf(k,NJ) N fixed and z constant

Question 3

Human capital

Question 4

R&D

Question 5

Ak model implication

Answer 5

Y=Ak
y=Ak per worker function
K’=I+(1-d)K
per worker k’=sAk+(1-d)k/(1+n)
k’-k=sAk-(d+n)k/1+n) as long as saving higher than the effective depreciation line and given that A is constant so k’-k keeps increasing
this explains through no diminishing marginal return that income per worker has a constant increase in living standards

Question 6

the implication of increase in saving in AK model

Answer 6

that we have a higher growth rate as well as an increase in y and k
ln c will drop at time t the time of increase in s and gradually it increases until it surpasses the level of consumption that would ve been under the old saving rate
the model tells us no convergence between countries unless the poor started with higher s than the rich and then catch up
poor and rich have the same saving rate will never catch up
rich higher saving rate the income gap increases

Question 7

Learning by doing steady state and AK model

Answer 7

Y=

Question 8

Learning by doing steady state and AK model

Answer 8

Y=