This preview shows pages 1–3. Sign up to view the full content.
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 - = = = Constant savings rate: I sY = Constant labour force growth rate: L L n = d Capital accumulation: K sY K =- 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 =- =- =- =-- =- + =- + d d d d d d Dhh Steady State: Diagram with y k = , sy and ( ) n k + curves Show existence, uniqueness and stability of steady state. Steady state exists because ( ) 1 K MP f k k - = = 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 -- = = + + 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