Growth in the Basic Romer Model:Consider the following model

Unknowns/Endogenous Variables Yt,At,Ly,t,La,t

Goods Production Function Yt=AtLy,t

Ideas Production FunctionAt+1=zAtLa,t

Resource Constraint Ly,t+La,t= L bar

Allocation of Labour La,t= L bar

Parameters:z bar, L bar ,, A0 bar

Suppose there exists a country that has been separated from the rest of the world for the last 30 years due to a dictatorial government.However, the country has recently open edits borders and allowed its people to interact with the rest of the world.The opening of the economy has allowed the stock of knowledge to increase greatly.

(a)What is the effect of a one-timeincrease in the stock of ideas (At)on GDP per capita.

(b)Graph the effect of the change in the stock of ideas on GDP per capita using a logor ratio scale graph.

(c)Now suppose that as part of the opening of this economy that citizens were allowed to leave the country for the first time.Assume that many citizens decided to leave the day the borders were open.This led to a permanent decrease in L.What is the effect of this loss of labour on the balanced growth path of GDP per capita.