Intermediate inputs as durables (based on Barro and Sala-i-Martin, 1992) Suppose that the intermediate inputs, Xij, are infinite-lived durable goods. New units of these durables can be formed from one unit of final output. The inventor of the jth type of intermediate good charges the rental price Rj, and the competitive producers of final goods treat Rj as given.
a. How is Rj determined?
b. In the steady state, what is the quantity, Xj, of each type of intermediate good?
c. What is the steady-state growth rate of the economy? How does this answer differ from the one discussed in the text for the case in which the intermediate inputs were perishable goods?
d. If the intermediate goods are durables, what kinds of dynamic effects arise in the transition to the steady state?