Question

Please write clearly and neatly and explain all steps taken to derive answer. Thank you!

Technology Transfer in the Solow Model. In many countries, one explanation for rapid economic growth during the last several decades is its expansion of policies that encourage “technology transfer.” By this, we mean policies—such as opening up to international trade and attracting multinational corporations through various incentives — that encourage the use and adoption of new ideas and new technologies. This question asks you to use the Solow model to study this scenario. To keep the problem simple, let’s assume the sole result of these technology transfer policies is to increase A by a large and permanent amount, one time (from A to A*). Please answer the following questions:

(a) In the long-run, by how much will GDP per capita have increased?

Answer 1