Q1) Consider two economies (indexed byi=1, 2) described byYi(t)=Ki(t)andKi(t)=siYi(t), where >1. Suppose that the two economies have the same initial value ofK, but thats1>s2. Show thatY1/Y2is continually rising.

Q2)

Consider an economy that has access to a production technology

Y = AKL1

where Y is output, A is the level of technology, K is capital and L is the amount of labor in the economy. Capital evolves according to K = sY (thus, the depreciation rate = 0). The x population growth rate is n. (Throughout, gx= x , where x can be any of the variables in the model.)

(a) Assume that technology is determined byA = BK

What sort of endogenous growth model is this? Find K/K in terms of the K, L, and other parameters of the model.

NOTE FROM THE STUDENT

THIS IS HOW THIS QUESTION IS FRASED