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This document provides an overview of the key concepts and exercises to be covered for ECON 302: Intermediate Macroeconomic Theory. It discusses the Romer model of endogenous technological change and compares it to the Solow growth model. Students are asked questions about determining the growth rate in the Romer model, the engine of long-run growth, and how changes in parameters would affect output per person over time. Key equations for the Solow and Romer models are also listed for comparison.

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38 views

Handout5 PDF

This document provides an overview of the key concepts and exercises to be covered for ECON 302: Intermediate Macroeconomic Theory. It discusses the Romer model of endogenous technological change and compares it to the Solow growth model. Students are asked questions about determining the growth rate in the Romer model, the engine of long-run growth, and how changes in parameters would affect output per person over time. Key equations for the Solow and Romer models are also listed for comparison.

Uploaded by

agonza70
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ECON 302: Intermediate Macroeconomic Theory (Spring 2012-13)

Discussion Section Week 5 – February 22, 2013

SOME KEY CONCEPTS


- The Romer Model (Solution to the model, comparative analysis)
- Comparison of Solow growth model and Romer model

EXERCISE
Question 1 (The Romer Model)
Recall that in the Romer model, the labor stock L is split such that the Lat = `L produces idea, the remaining
Lyt = 1 ` L produces output. The idea production is given by At+1 = zAt Lat . The output production
is given by Yt = At Lyt . We find that the growth rate of output per person is constant at g = z`L. The
t
output per person at time t can be solved as yt = A0 1 ` 1 + z`L .
(a) Explain the composition of the growth rate, namely, what determines the growth rate?
(b) What is the engine of growth under Romer model? What drives long-run growth? What is the return
(c) True or false? The Romer model has steady state level of capital and output. Why?
(d) Graph out the output per person against time, for any initial value.

Question 2 (The Romer Model - Comparative Analysis)


Distinguish the effect from the following scenario towards the output per person under Romer model. What
is the effect towards the output per person, in level or in growth? Point out in the expression for the output
per person and graph on ratio scale.
(a) Decrease in population
(b) Decrease in proportion of researcher
(c) Increase in productivity of idea production
(d) Higher initial stock of idea

Question 3 (Comparison of Solow and Romer Model)


List out the some key equations determining the equilibrium of the Solow and Romer models. Do not
memorize, look at the following items:
Solow Romer
Output Production
Idea Production
Investment
Capital Accumulation Equation

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