Question
Consider the endogenous growth model that we discussed in chapter 8. Output is Y = zuHd , where z is total factor productivity, u is
Consider the endogenous growth model that we discussed in chapter 8. Output is Y = zuHd , where z is total factor productivity, u is working time, and Hd is the demand for human capital. Consumption is C = wuHs , where w is wage per human capital and Hs is the supply of human capital. Human capital accumulates over time according to Hs 0 = b(1 u)Hs , where b is the efficiency of the education system and 1 u is the time devoted to education. First, find the wage w in terms of the model exogenous variables (i.e., z, b, u). Then, suppose working time suddenly rises. Show what happens to consumption and also the growth rate of consumption, both in a graph and also using equations. At the time when working time rises, does consumption rise or fall? What happens to consumption far in the future (compare it to the case before working time rises)?
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