post chapter 8

post chapter 8 - CHAPTER EIGHT macro CHAPTER 8 Economic...

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1 macro CHAPTER EIGHT Economic Growth II CHAPTER 8 Economic Growth II Economic Growth II slide 1 Learning objectives Learning objectives ± Technological progress in the Solow model ± Policies to promote growth ± Growth empirics: Confronting the theory with facts ± Endogenous growth: Two simple models in which the rate of technological progress is endogenous CHAPTER 8 Economic Growth II slide 2 Introduction Introduction In the Solow model of Chapter 7, ± the production technology is held constant ± income per capita is constant in the steady state. Neither point is true in the real world: ± 1929-2001: U.S. real GDP per person grew by a factor of 4.8, or 2.2% per year. ± examples of technological progress abound (see next slide)
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2 CHAPTER 8 CHAPTER 8 Economic Growth II slide 3 Examples of technological progress Examples of technological progress ± 1970: 50,000 computers in the world 2000: 51% of U.S. households have 1 or more computers ± The real price of computer power has fallen an average of 30% per year over the past three decades. ± The average car built in 1996 contained more computer processing power than the first lunar landing craft in 1969. ± Modems are 22 times faster today than two decades ago. ± Since 1980, semiconductor usage per unit of GDP has increased by a factor of 3500. ± 1981: 213 computers connected to the Internet 2000: 60 million computers connected to the Internet CHAPTER 8 Economic Growth II Economic Growth II slide 4 Tech. progress in the Solow model ± A new variable: E = labor efficiency ± The Production Function becomes: ± where L × = the number of effective workers. Hence, increases in labor efficiency have the same effect on output as increases in the labor force. (, ) YFKL x E = CHAPTER 8 Economic Growth II slide 5 Tech. progress in the Solow model Tech. progress in the Solow model ± Assume: Technological progress is labor- augmenting : it increases labor efficiency at the exogenous rate g : == 005 .
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3 CHAPTER 8 CHAPTER 8 Economic Growth II slide 6 Tech. progress in the Solow model Tech. progress in the Solow model ± Notation: y = Y/LE = output per effective worker k = K/LE = capital per effective worker ± Production function per effective worker: = f ( ) ± Saving and investment per effective worker: s y = s f CHAPTER 8 Economic Growth II Economic Growth II slide 7 Tech. progress in the Solow model ( δ + n + g ) = break-even investment: the amount of investment necessary to keep constant. Consists of: to replace depreciating capital nk to provide capital for new workers gk to provide capital for the new “effective” workers created by technological progress CHAPTER 8 Economic Growth II slide 8 Tech. progress in the Solow model Tech. progress in the Solow model Investment, break-even investment Capital per worker, sf(k) ( + + ) * = ( + n + )
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4 CHAPTER 8 CHAPTER 8 Economic Growth II slide 9 Steady -State Growth Rates in the State Growth Rates in the Solow Model with Tech. Progress n + g Y = y × E × L Total output ( / L )= × Output per worker 0 = ( × ) Output per effective worker 0 k = K ( × ) Capital per effective worker Steady-state growth rate Symbol
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post chapter 8 - CHAPTER EIGHT macro CHAPTER 8 Economic...

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