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Think of an economy that uses a non-renewable resource, X, as part of production. It extracts an amount E to use in production, and Et=SXXt
Think of an economy that uses a non-renewable resource, X, as part of production. It extracts an amount E to use in production, and Et=SXXt where SX is the extraction rate. The production function is Yt=KtEt(AtLt)1. At time zero this economy experiences a permanent increase in the extraction rate. Select all of the following that would occur, based on the model from the Study Guide. The economy will run out of resources eventually. GDP per capita will eventually be lower than it would have been if the increase in the extraction rate had never occurred. The population growth rate must fall. The growth rate of GDP per capita along the balanced growth path is higher than before The capital/output ratio along the balanced growth path remains the same. Resources per capita, x, decline at a faster rate than before. The level of GDP per capita at time zero is higher The level of productivity, A, will be permanently higher in the long run
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