Consider the combined solow-romer model

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Reference no: EM131000401

Consider the combined Solow-Romer model (i.e., there are both capital and idea stocks) that we worked through. Suppose the economy begins on a balanced growth path in the year 2000. Then in 2030, the depreciation rate ¯d rises permanently to a higher level ¯d 0 .

(a) Graph (please no hand-sketched versions this time!) the behavior of output per person over time, using a log/ratio scale.

(b) Explain what happens to the growth rate of output per person over time and why.

Reference no: EM131000401

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