Question
According to the Romer model, if the stock of ideas
increases by 15 %, how much will output per worker increase when all else is equal?Solution
formula for basic production function, according to Romer is as: Yi = AKiα Li1-α K-ß Now other things is equal, one unit change in A (idea/technology) will increase the output by 1 [dy/dA = 1]. Hence output will increase by 15% if the stock of idea increses by 15%.
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