1a. 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, q. Assume the country begins at its steady state values of k*
and h*
before this
event occurs. Justify your answer by use of graph and/or equation.
1b. How does each answer compare to the answer the original Solow model would give when s increases,
both qualitatively (whether the amount goes up or down) and quantitatively (the amount by which it goes up or
down)?
2. Consider the Solow model with total factor productivity At constantly growing at rate g>0.
a. Determine the a) instantaneous impact on GDP per capita, b) instantaneous impact on consumption per
capita, c) long-run impact on GDP per capita (i.e. compare the level of GDP per capita with and without the
parameter change, in the long-run), d) long-run impact on consumption per capita (i.e. compare the level of
consumption per capita with and without the parameter change, in the long-run), and e) impact on long-run
GDP per capita growth rate of a one-time and instantaneous increase (jump) in productivity At, through a
significant and non-repeatable invention. 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. [Hint: this should not be considered a
change in g, since productivity resumes growth at rate g after the one-time jump; it should be modeled as a onetime
jump in At.]
b. Graph the path of yt and ct against time (or better yet, ln(yt) and ln(ct), which will be linear) for the event……”