Endogenous

Question 1

What is the factor that works against diminishing returns in Romer?

Answer 1

Increasing product variety works against diminishing returns.

Question 2

What are the 3 market clearing conditions in Romer?

Answer 2

1) Bt = Kt
2) N = L = Lyt + LAt
3) Kt+1 - Kt = Yt - Ct

Question 3

How does the Romer model determine that there is too little research in equilibrium?

Answer 3

The social planner solution has a higher growth rate, and lower labour input in the final good production. -> more growth when more labour in research