Consider the Romer model with (0, 1), and (0, 1). a) (5 points) What are the three distortions in the model that make the equilibrium allocation be

Consider the Romer model with φ ∈ (0, 1), and λ ∈ (0, 1). a) (5 points) What are the three distortions in the model that make the equilibrium allocation be inefficient?

b) (5 points) Suppose the government could intervene in the economy to increase or decrease the share of the population devoted to research, sA. For each of the inefficiencies described in part a, describe what the government should do to x it, increase or decrease sA, and why.

c) (5 points) Would this type of government intervention affect the long-run growth rate of the economy?

d) (5 points) Now suppose that φ = 1. Would this type of government intervention affect the long-run growth rate of the economy?