Assume that the population (

L

) and the stock of capital (

K

) are fixed.

Given this, consider the simplest, appropriate model from class to explain the determinants of

long run output (

Y

t

), as envisioned in problem 1 above. Using your model, please answer the

following questions:

(a)

[5 Points]

Derive an expression for long run output

Y

t

.

(b)

[5 Points]

Derive an expression for the long run return on capital

r

.

(c)

[5 Points]

Now suppose that capital is not fixed, but rather is the long run outcome of capital

accumulation. Again, using the simplest, appropriate model from class for this situation,

how to do your results for parts (a) and (b) change? Be brief but precise.

(d)

[5 Points]

Finally, now suppose that the stock of ideas in the economy is growing at an ex-

ogenous rate. Again, based on the simplest, appropriate model from class for this situation,

verbally explain (no math needed) how your result for long run output

Y

t

would change (if

at all).