Consider the endogenous growth model Consumer behaviour is summarized byC=wuHs The law of motion… 1 answer below »

Consider the endogenous growth model

Consumer behaviour is summarized byC=wuHs

The law of motion for human capital is given byHs’=b(1-u)Hs

The production function isY=zuHd

(a) What is the main difference between this model and the Solow growth model in terms of how growth is explained?

(b) Solve for a competitive equilibrium in this framework. What is Y, C, H’ in equilibrium?

(c) Solve for the growth rates of Y, C and H’.

(d) What is the key prediction of this model? What is the importance of b and u?

(e) Explain why this model explains differences in living standards between poor countries and rich and poor countries but has a hard time account for these differences between rich countries.





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