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Find the growth rate of human capital

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Consider the endogenous growth model, where the future period quantity of human capital is a function of current human capital, which drives production and thus growth. In the competitive equilibrium, C = Y and human capital accumulation is characterized as follows:

H′ = b(1 - u)H, (1)

where H′ represents the future quantity of human capital, H represents the current quantity of human capital, bcaptures the efficiency of human capital accumulation and (1 - u) denotes the fraction of time devoted to human capital accumulation.

(a) Find the growth rate of human capital. Be sure to show your work.

(b) Find the growth rate of consumption. Be sure to show your work.

(c) Use your answer from part (a) and (b), in addition to the fact that C = Y in equlibrium, to explain why the economy will grow indefinitely when b(1 - u) > 1.

(d) Explain why the endogenous growth model allows for unbounded growth, whereas the Solow model does not.

Reference no: EM132405726

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