answer all!

PART A

Provide brief intuitive answers to the following questions.

1. In the endogenous growth model, per capita incomes do not converge across rich and poor

countries, even if countries are identical except for initial levels of human capital. Using the

model predictions explain how human capital accumulation promote economic growth.

2. Given that b, the efficiency of the human capital accumulation technology is constant. Suppose that u, time spent working, increases in the endogenous growth model. What effect

does this have on the rate of growth of human capital and on the consumption path?

3. Define competitive equilibrium in the monetary intertemporal model?

4. When an economy is in a liquidity trap state can the adoption of quantitative easing (QE)

influence growth?

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PART B

Consider the Endogenous Growth Model with the representative consumer. The efficiency

parameter of human capital accumulation technology is b = 5. The total productivity factor is

given by z = 60. Denote by Ht the human capital accumulated in period t, and by ut the time

spent working in period t. Assume u0 = 0.85 and H0 = 1.

1. Compute the consumer consumption Ct for periods 0 and 1.

2. Starting from year 2, the government applies a policy that raises b to 9. Now assume that in

face of this increased value of human capital in the economy, the consumer responds optimally

by decreasing ut to 0.75. Calculate the consumption Ct for periods 2 and 3.