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SOLUTIONS TO CHAFTER1 growth rate ofa variable equal the time derivative of its lg, as shown by equation (1.10) in ‘he text, weean write bX YC] & « Since the lg ofthe preduct of two variables equa the sun of tir ons we have ox) +in¥e] _dnXW) , din Vo es a dt ) 2X0 YO 70) Xe "Vo (0) Anan, since te groweh rat ofa variate equal te tine drvativ oft og, wecanwrte oy 20) anzey alo] Zt) at dt Since the lg ofthe ra eft vrable qual th difornc inthe legs, wehave 2G) _dlnX@)-ln¥(o)]_dnXiy Ain Vie) & Ze & a @ ate )_X@_YOo gy Ue Xo _¥O © 20" xo Vo © Webave 2) _AlnZ) _dlalX(*] 20 é {sing th fac at lafX)"] = ahXE), wove 20, Mleloxe) _atnxeo | 80 Zt) dt a X(t)" how ne hve we th facta i conan ‘Eroblem 1.2 (Q)Usiag the information provided inthe question, the path ofthe growth rate of X, X()/X(), is dapicted in| X00 the figure at right. xo| From time 0rotime tthe growth rate of X is constant and equal toa > 0, Attime ty, the growth rate of X ‘drops to0, From timet; to time ty, the gronth rate of at-— ‘X rises gradually fom 0 to a, Note that we have made the assumption that X(t)/X(t) rises at a constant rate fromts tots. Finally, ater time ts the growth rate of ‘Xis constant and equal toa again 2 Solutions to Chapter 1 () Note that the slope of nx") placed againsttime is equal to tho growth rate of X(t) That is, we know dinxe) (0) at XW) (See equation (110) in hotest.) From time 0 to tet the slope of nX(t) equals a>0. The iX() locushas an infection point a ts, ‘wen the growth rat of X() changes discontinuously ‘from 2t00. Between ty and ty, the slope of nXit) rises gradually from Oto a. Alter time tthe slope of 1nX() is constant and equal toa >0 again, Problem 1.3 (a) The slope ofthe break-even invesment line is sven by (n+ +8) andthes a fall inthe rate of deprecation, 8, decteasts the slope ofthe break-even investment ine, ‘The actual investment curve, sf) is unaffected, From the figure a right wo san see thet the belanced srowth-path level of capital per unt of effictive labor rises from 0 Kew () Since the slope ofthe break-even investment ine is given by (a+ g+8), arise inthe rate of technological progres, g, rake the break-even investment line steeper. ‘The actual investment curve fk), is unaffected From the figure a right we can see thatthe balanced: growth path level of capéal per unt ofeffective labor fale from Et kta Neen Solutionsto Chapter 1 3 (0 Thebreak-even investment line, n+ g+8),is |, unaffected by th rise in capital’ share, a. arin “The effect ofa change ina on the actual investment carve, sk, can be determined by examining the ater erivative Qsk"V0. is possible show dat ak" og oy Sk lnk For 0 @ <1, and for postive values of, he sign of OGk"/Cu is determined by the sig of lnk, For Ink 0, oF k> 1, 04k" /ou > 0 and 0 the new actual Paw k fnvesument curve Hes above the od ene. For ~ Ink <0 oF k< 1, Osk™ /oa <0 and so the new actual investment curve lies below the cld one. Atk = 1, 50 that k © 0, emew actual invesiment curve imersets te old one. Ts adition the affect of arise in x on It ie ambiguous and depends on tho relative magnitude of ¢ and (e+ g +8). leis posible o chow thit aries in captale charg, will eauselet to sseifs> (a +2+8), ‘This isthe case depicted in the figure above (@) Suppose we modify the intensive form ofthe production funcion to include a non-neative Constant, B, so thatthe actual investment curveis gen by SBI, B > 0 ‘Then werkors exerting more off, so that cutput por unit of effective labor is hiher than before, ean be rmoddedas an increase in B. This increase in B shifts the actual investment curve up. “The break-even imestment line, (0+ +3), is ‘uafeced From the figure right ws can ote that tho balanced. growth path level of espital par unit of effective labor rises from k*toktaw Problem 14 (@) At sometime, call it, there isa diserte upward jump inthe number of workers. This reduces the amount of capital per unit of efesive labor from K* to kxrw - We can see tis by siruply looking atthe defintion, K= K/AL An increase n L without a jump it K or A causes kto fall. Since £" (> 0, tis fl inthe amount of capital per unit of effective labor reduces the amoust of oxtptx per wit of effective labor as well. ta the figure below, falls from y* © yspw.