This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: 1 Solow Model 1. No Technological Progress Setup • CRS production function: 1 1 3 ( ) Y K L y f k k α α α α- = ⇔ = = ≈ • Constant savings rate: I sY = • Constant labour force growth rate: L L n = d • Capital accumulation: K sY K δ =- d Maths: ( ) v ( ) Savings Depreciation + Investment Labour Force Growth K K sY K s y k k k K K L L s y k n k sy n k k sk n k α δ δ δ δ δ ≡ =- =- =- =-- =- + ⇒ =- + d d d d d d Dh¡h¢ Steady State: • Diagram with y k α = , sy and ( ) n k δ + curves – Show existence, uniqueness and stability of steady state. • Steady state exists because ( ) 1 K MP f k k α α- ′ = = declines as k rises. In endogenous growth models, this does not occur because there is some form of increasing returns to scale. • Steady state: 1 1 1 s s k y n n α α α δ δ-- = = + + • Comparative statics – examine effects of changes in s and n. 2 • Need to distinguish between levels effects and transitional growth rate effects...
View Full Document
- Spring '10
- Steady State, Capital accumulation, Endogenous growth theory, Exogenous growth model, AL AL K KY