Chapter 8

Chapter 8 - Savings and investment can lead to persistent...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Kimberly Zhang Chapter 8 Y = F(K, L*E) o E = efficiency of labor: as available technology improves, efficiency of labor rises o L*E = number of effective workers o E grows at constant rate g k = K/(L*E), y = Y/(L*E) y = f( k ) o Y = y*L*E Growth rate of real GDP = 0 + n + g = n + g o Δ k = sf( k ) – (δ + n + g) k o Steady-state consumption maximized when MPK = δ + n + g Endogenous growth theory o ΔK = sY – δK o Y = AK o Growth rate of output = ΔY/ΔK = A = Y/K ΔY/Y = ΔK/K = sA – δ As long as sA – δ > 0, economy’s income grows forever
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Savings and investment can lead to persistent growth v. Solow: higher savings leads to growth temporarily but diminishing returns to capital forces the economy to approach steady state Practice problem tips o If real GDP grows 3% n + g = .03 o Capital income is 30% of GDP MPK* k = .3y Okuns Law: negative relationship between unemployment and GDP o Percentage Change in Real GDP = 3.5% - 2 * Change in Unemployment Rate...
View Full Document

This note was uploaded on 09/13/2009 for the course 220 204 taught by Professor Clare during the Spring '08 term at Rutgers.

Ask a homework question - tutors are online