Provide an economic interpretation for each equation
Econometrics
A variation on the Romer model. Consider
the following variation:
1/2
Yt = At Lyt ,
At+1 = z At Lat ,
Lyt + Lat = L,
Lat = lL.
There is a single difference: we’ve changed the exponent on At in the production function of the output good so that there is now a diminishing marginal product to ideas in that sector.
1. Provide an economic interpretation for each equation.
2. What is the growth rate of knowledge in this economy.
3. What is the growth rate of output per person in this economy?
4. Solve for the level of output per person at each point in time.
