Mych06b - Ch.(Continued TheGrowthModel TheSolowframework 1)...

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Ch. 6 Long-run Economic Growth (Continued)  The Growth Model The Solow framework      1) The steady state value of k* a. characterization: sf(k*) - (n + d)k* = 0 b.  stability : tendency to  return from  deviation       2) Sensitivity analysis of k*       3) Welfare analysis – The golden rule Endogenous Growth Model and Government  Policy 1
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1) The  steady state  capital–labor ratio ( Figure  6.5)   sf(k 1 ) - (n + d) k 1  > 0 Characterization Stability 2
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2) Sensitivity Analysis       (The fundamental determinants of long- run  living standards) a.The saving rate a. Population growth b. Productivity growth 3
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2. a) The effect of an increased saving rate  ( Figure  6.6 ) 4
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- Should a policy goal be to raise the saving  rate? Not necessarily, since the cost is lower  consumption in the short run There is a trade-off between present and  future consumption 5
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2. b) The effect of a higher population growth rate ( Figure  6.7) 6
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population growth? Doing so will raise consumption per 
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Mych06b - Ch.(Continued TheGrowthModel TheSolowframework 1)...

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