Question

Use the H-augmented Solow model to determine the a) instantaneous impact on GDP per capita, b) instantaneous impact on consumption per capita, c) long-run impact on GDP per capita, d) long-run impact on consumption per capita, e) impact on long-run GDP per capita growth rate, and f) impact on long-run GDP growth rate of a permanent and instantaneous increase in the fraction of national resources devoted to investment in human capital, sh. Assume the country begins at its steady state value of k* before this event occurs. Justify your answer by use of graph and/or equation. 1b. How does each answer compare qualitatively to the answer the original Solow model would give when s increases (whether the amount goes up or down)? 1c. How might you expect a change in sk in the H-Solow model to compare quantitatively to a change in s in the Solow model (the amount by which it goes up or down)?

Answer 1