Midterm+1+Review

Midterm+1+Review - Midterm I - Review Growth Accounting...

This preview shows pages 1–6. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Midterm I - Review Growth Accounting Solow in Short Friday, January 29, 2010 Deriving Output Growth The output in the economy: Y=f(K,AL) In general - an increase in Y is: Where: Thus: Δ Y = ∂ Y ∂ K Δ K + ∂ Y ∂ AL ( ) Δ ( AL ) Δ ( AL ) = L Δ A + A Δ L Δ Y = f K ⋅ K ( ) Δ K K + f AL ⋅ AL ( ) Δ A A L L + A A Δ L L ⎛ ⎝ ⎜ ⎞ ⎠ ⎟ = f K ⋅ K ( ) Δ K K + f AL ⋅ AL ( ) Δ A A + Δ L L ⎛ ⎝ ⎜ ⎞ ⎠ ⎟ Friday, January 29, 2010 Deriving Output Growth In competitive market, factors earn their marginal product: and Thus: Notice: rK is the total payments to owners of capital wAL is the total payments to labor r = f K Δ Y = r ⋅ K ( ) Δ K K + ω ⋅ AL ( ) Δ A A L L + A A Δ L L ⎛ ⎝ ⎜ ⎞ ⎠ ⎟ = r ⋅ K ( ) Δ K K + ω ⋅ AL ( ) Δ A A + Δ L L ⎛ ⎝ ⎜ ⎞ ⎠ ⎟ ω = f AL Friday, January 29, 2010 And Last Step... Output growth: or: Note: is the share of capital in total output is the share of labor in total output Δ Y Y = r ⋅ K ( ) Y Δ K K + ω ⋅ AL ( ) Y Δ A A + Δ L L ⎛ ⎝ ⎜ ⎞ ⎠ ⎟ S K = r ⋅ K ( ) Y S AL = r ⋅ K ( ) Y ˆ Y = r ⋅ K ( ) Y ˆ K + ω ⋅ AL ( ) Y ˆ A + ˆ L ( ) = S K ⋅ ˆ K + S AL ⋅ ( n + g ) Friday, January 29, 2010 Cobb-Douglas Production Assume that the production function is Cobb-Douglas: Y=K α (AL) 1- α Here, S K = α is the share of the capital in the total output and S AL =1- α is the share of the labor in total output....
View Full Document

This note was uploaded on 03/11/2010 for the course ECN ECN111b taught by Professor Meissner during the Winter '10 term at UC Davis.

Page1 / 21

Midterm+1+Review - Midterm I - Review Growth Accounting...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online