1.8. Suppose that, as in Problem 1.7, capital and labor are paid their marginal products. In addition,...

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1.8. Suppose that, as in Problem 1.7, capital and labor are paid their marginal products. In addition, suppose that all capital income is saved and all labor income is consumed. Thus K = [F (K, AL)/K]K-8K.

(a) Show that this economy converges to a balanced growth path.

(b) Is k on the balanced growth path greater than, less than, or equal to the golden-rule level of k? What is the intuition for this result?

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Advanced Macroeconomics

ISBN: 390326

1st Edition

Authors: David Romer

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Question Posted: Nov 15, 2024 12:00 AM

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1.8. Suppose that, as in Problem 1.7, capital and labor are paid their marginal products. In addition,...

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Advanced Macroeconomics

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