Question

Consider the Romer economy with the following parameter values: A0=100, 6% of the workforce is employed in research sector, research productivity is z=1/3,000 and the workforce equals 1,000.

What is the initial level of output per person (in period 0)? *

A. 96

B.102

C.100

D.114

What is the level of output per person after 100 years? Pick the closest value *

A. 996

B. 96

C. 681

D. 699

Suppose that adjustments to immigration policy lead to an increase in the workforce of 10% (to 1,100 workers). Calculate the new growth rate of output per worker. *

A. 1.1%

B. 2.2%

C. 2%

D. 11%

How will the increase in L impact the Romer diagram? *

A. In a standard scale the line becomes steeper.

B. In a ratio scale the function becomes exponential.

C. In a standard scale the line becomes linear.

D. In a ratio scale the line becomes steeper.

Answer 1

Given A0 = 100, l=0.06, L=1000, z=1/3000

1) Initial level of output per person (in period 0), y= Ao(1-l) = 100(1-0.06) = 94

2) growth rate of output per person, g= z*l*L*100 =0.06*1000*100*(1/3000) = 2%

  level of output per person after 100 years = *y = 94* = 681

3) If L=1100,

then g = 0.06*1100*100*(1/3000) = 2.2%

4)

In a standard scale the line becomes steeper due to increase in population.