ch5notes - The Solow Growth Model Production: Yt F ( K t ,...

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The Solow Growth Model Production: 3 / 2 3 / 1 ) , ( t t t t t L K A L K F Y = = Labor Force: L L t = The Production Function t K t Y 3 / 2 3 / 1 L K A t
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Output may be consumed or invested Uses of Output: t t t I C Y + = Investment accumulates as future capital. Investment Choice: t t Y s I = Output and Gross Investment t K t Y t t I Y , t t Y s I =
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Capital Accumulation Existing capital wears out over time. Depreciation t K d = Depreciation t K t K d Net Investment t t t t K d I K K - + = + 1 t t t K d I K - =
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Change in Capital = Net Investment t t t t t K d L K A s K d Y s K - = - = 3 / 2 3 / 1
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The evolution of t K When t t K d Y s , net investment > 0. The stock of capital grows over time. When t t Y s K d , net investment < 0. The stock of capital shrinks over time. The stock of capital is unchanged when t t K d Y s = Therefore 0 = t K when t t K d Y s = .
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The Steady-State L d A s K K K K d L A s K d L K A s K d L K A s K t t t 2 / 3 * 3 / 2 * 3 / 1 * * 3 / 2 * 3 / 2 3 / 1 * 3
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This note was uploaded on 07/17/2008 for the course ECON 502.02 taught by Professor Mccafferty during the Spring '08 term at Ohio State.

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ch5notes - The Solow Growth Model Production: Yt F ( K t ,...

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