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4) The economist Robert Gordon has written a book entitled The Rise and Fall of American Growth arguing that the glory days of U.S. economic
4) The economist Robert Gordon has written a book entitled The Rise and Fall of American Growth arguing that the glory days of U.S. economic growth are over (don't worry, you did not need to read this book). Use the Neoclassical Growth Model with an aggregate production function of the form Y = K" (A.N.)- to answer the following questions that relate to Gordon's arguments. Assume that the growth rate of the population is the same as the growth rate of the work force, and start your analysis with the economy in a steady state. a) What would a decline in the population growth rate do to the growth rate of GDP in the new steady state? What would a decline in the population growth rate do to the growth rate of GDP per capita in the new steady state? b) What would a decline in the population growth rate do to the level of GDP per capita in the new steady state? c) What would a decline in the population growth rate do to the growth rate of GDP per capita in the transition from the old to the new steady state? Show this in a graph of the growth rate of GDP per capita against time. d) Gordon's main argument is that the 100 years from 1870-1970 were the golden era of technological innovation and that this will not be repeated again. How would you represent this claim about technological innovation in terms of the Neoclassical Growth Model? e) Given your answer in d), what does Gordon's argument imply for the steady state growth rate of GDP? What does it imply for the steady state growth rate of GDP per capita? f) Given your answer in e), according to Gordon what will happen to the growth rate of the American standard of living in the future in comparison to what it was during the golden era of technological innovation
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