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Part A
1
(d) If two countries differ only in terms of their total factor productivity, will they
converge over time in per-capita terms?
11. The Ak-model of endogenous growth: Imagine that the marginal product of capital
were constant, instead of being diminishing in capital. In particular, assume that
y = Ak, where A is a positive constant, but that the rest of the model is the standard
Solow model. Assume also that sA > n + d.
(a) Plot production, saving and the maintenance curves in the same diagram.
(b) Where can we observe k in the figure?
(c) Use your figure to show what will happen to k over time. Graphically show how
the steady-state capital level changes as capital grows.
(d) Is it possible for capital accumulation to produce everlasting growth in this model?
Explain.
(e) Would countries that start with different capital levels converge in this model?
Explain.
12. Alternative endogenous growth model: Imagine that total factor productivity z auto-
matically grows as capital k is accumulated, as a result of new capital embodying new
technology. Assume that the capital stock is initially below the steady-state level.
(a) Graphically show how the steady-state capital level changes as capital grows.
(b) Is it possible for capital accumulation to produce everlasting growth in this model?
Explain.
(c) Would countries that start with different capital levels converge in this model?
Explain.