Question

TRUE/FALSE/ OR UNCERTAIN: Support your answer using a few sentences, diagrams and possibly equations

1. The representative producer's optimal labour demand is independent of the amount of capital in the economy.

2. In the Solow growth model, if we assume the standard properties of the production technology, which are discussed in class, the economy tends to move toward the steady state with positive capital stock per worker.

3. In the endogenous growth model of human capital accumulation the representative household's action and government's policy could have no impact on the growth rate of the economy.

Answer 1

1. False. The demand for labor in the economy is not independent of the amount of capital in the economy. The labor demand in the economy depends on the amount of capital stock in the economy and inputs are not perfect substitutes of each other, rather they are complement each other in the process of production. Thus, representative producer's optimal labour demand is not independent of the amount of capital in the economy.

2. True. In the Solow Model, we assume that the economy tends to move towards the steady state with positive capital stock per worker. The economy always move towards the steady state.

3. False. In the negogeneous growth model, technological progress in the economy is endogeneous but the  representative household's action and government's policy could have an impact on the growth rate of the economy. The economic growth rate also depends on these factors.