This question asks about the endogenous growth model. In particular, suppose that initially, an economy has $H = 100$ $z = 1$ $b = 4$ $u = 0.7$ Answer the following questions: A. Calculate output per-capita for the first three periods of this economy. B. Now suppose that the government institutes a policy that decreases $u$ to $u = 0.6$. Recalculate output per-capita for the first three periods. C. What is the trade-off involved here? How long does it take for output per-capita to exceed the initial case of $u = 0.7$?
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The human capital evolves according to: $H_{t+1} = (1 - u)H_t + bH_t$ where u is the fraction of time spent working and b is the productivity of human capital. We are given that $H_0 = 100$, $z = 1$, $b = 4$, and $u = 0.7$. Show more…
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