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n Consider a Human Capital Growth Model, where the human capital of the population evolves according to: Hs' = 6(1 - u) H where b
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Consider a Human Capital Growth Model, where the human capital of the population evolves according to: Hs' = 6(1 - u) H where b is the efficiency of human capital accumulation and u is the unit of time devoted to working each period. Firms produce output according to: Y = zu(Hd)a b= 6 z = 2 u 0.80 a = 0.5 Part A [5 Marks]: Draw a graph with H on the horizontal axis and H' on the vertical axis. Plot the 45 line and the human capital accumulation equation. Is there a steady-state level of human capital in this model? Plot it if it exists. Part B [5 Marks]: At time t = 1 H = 5. Calculate H; for t = 2,3,4,5. Draw a graph with time t on the horizontal axis and H on the vertical axis. Does H grow at a zero rate, a linear, rate or an exponential rate over time? (1 sentence) Part C [5 Marks]: Calculate Ys for t = 1,2,3,4,5. Draw a graph with time t on the horizontal axis and Y on the vertical axis. Does Y grow at a zero rate, a linear rate, or an exponential rate over time? (1 sentence) Part D [10 Marks]: Assume there are two countries, A and B, with H = 5 and H = 2.5, b = bB = 6 and u = UB = 0.8. Draw a graph with time t on the horizontal axis and Y on the vertical axis. Plot both countries income levels over time. Will these two countries converge to the same level of income in the long run? Why? (2-3 sentences)
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