A) Why do we get sustained growth in the Romer model (which is about new ideas) while we do not get sustained growth in the Solow model (which is about accumulation of capital)? .

B) Suppose that in Newland, 200 workers perform Research and Development (R&D) and 800 workers are involved in production of goods and services. Suppose that at the current time A = 100. Suppose that z bar = 0.0001. Find output per capita and the growth rate of output per capita.

C) Find output per capita in 10 years time and in 20 years time.

D) A prominent economist is arguing for public policies to encourage innovation. She estimates that if her proposals are carried out, the number of R&D workers will go up to 300. (The total number of workers will not change.)

Find GDP per capita under her proposal in 10 years time and in 20 years time.

E) Compare output per capita under the two scenarios: the current policy and the proposed new policy. Which one do you think is better? Why?