Part 3 - Endogenous Growth: Human Capital Accumulation

Question 1

Assumptions

Answer 1

• No leasure time. Either produktion or learn to improve
• No savings
  unboundete growth, because no limit for human knowledge

Question 2

Representative Consumer

Answer 2

• One unit of time for work and accumulating human capital
• u is the fraction of time devoted to working in each period
• For the efficiency of labor supply the consumer receive real wage w.
• Budget Constraint: C=wuHs

Question 3

Time not used for production is used for human capital

accumulation:

Answer 3

• Hs: b(1-u)Hs
• b>0 parameter that captures the efficiency of the human capital accumulation technology.
• (1-u) time for traning

Question 4

Representative Firm

Answer 4

• production function Y=zuHd
• No Capital
• Constant return to scale
• z > 0 is the marginal product of efficiency units of labor

Question 5

Firms current profits

Answer 5

Pie = Y - wuHd = zuHd - wuHd = (z-w)uHd

z - w 0: Firm wants to hire an infinite quantity of workers

Question 6

Representative Firm

Answer 6

• Firm’s demand curve for efficiency units of labor is infinitely elastic at w = z.
• Labor demand = z

Question 7

Competitive Equilibrium

Answer 7

• There is only one market each period (the labor market), which clears at a real wage of w = z so that Hs = Hd = H.
• Growth rate of Consumption is equal to human capital: b(1-u)-1