Human Capital (2 sector) model

Question 1

Which is a particular capital characteristic within the 2 sector model?

Answer 1

We differentiate between human capital and physical capital to build two sectors

Question 2

Which are the two sectors in the model?

Answer 2

1. Education sector, in which the final production is obtained by the combination of physical and human capital
2. Final good sector, in which production and the accumulation of human capital is determined through physical and human capital

Question 3

What can the final product be used for?

Answer 3

It can be used for consumption or it can be transformed into physical capital

Question 4

Which are the two types of technology available for the 2 sector model?

Answer 4

Technology that is used for the production of human capital, and technology that is used in the production of the final good

Question 5

Which is a relevant assumption about the education process in the 2 sector model?

Answer 5

The education process only uses human capital, which means that all physical capital is used in the production of the final good

Question 6

Which are some characteristics from the steady state in the 2 sector model?

Answer 6

• We now have two dynamic restrictions and two control variables
• The depreciation rates of both types of capital are identical
• All variables grow at a constant rate
• The growth rates of physical and human capital are exactly the same

Question 7

What does the growth rate of consumption in the 2 sector model depend on?

Answer 7

• Marginal product of physical capital
• Stock of human capital
• Fraction of human capital devoted to the final good sector

Question 8

Which are some of the differences between the 2 sector model and the AK model?

Answer 8

While the long run growth rate is similar, the productivity parameter of the growth rate belongs to the education sector, instead of the final good sector