20 Jul DOES FOLLOWING POLICY 1 LEAD TO HIGHER LEVEL OF OUTPUT PER WORKER THAN THE ALTERNATIVE SCENARIO OF DOING NOTHING?
Consider a country where capital per effective worker has converged to the steady state level. The g Show more Consider a country where capital per effective worker has converged to the steady state level. The government is concerned that the rate of growth is too low and is studying two policies in order to improve economic performance. Policy 1 encourages people to save more (s>s) which leads to higher investment. Policy 2 encourages the creation of high tech firms which are associated with greater rates of technological innovation (gA>gA). 5. Does following policy 1 lead to higher level of output per worker than the alternative scenario of doing nothing? Explain why or why not. 6. On a graph with time on the horizontal axis and output per worker on the vertical axis show the path for yt over time. Suppose that from t=0 to t=t* the country follows the earlier path and at t * policy 1 starts taking effect. 7. Does following policy 2 lead to higher level of output per worker than the alternative scenario of doing nothing? Explain why or why not. 8. On a graph with time on the horizontal axis and output per worker on the vertical axis show the path for yt over time. Suppose that from t=0 to t=t* the country follows the earlier path and at t * policy 2 starts taking effect. 9. In the long run does policy 1 or policy 2 lead to higher output per worker? Explain. Show less
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