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# Section+1 - Section 1 Econ 111B,edit Master subtitle style...

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Click to edit Master subtitle style 3/12/10 Econ 111B, WQ10 TA – Rivka Shenhav [email protected] Office: SS 123 Office hours: TR 1-2pm 1 1 Section 1

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3/12/10 Moto 2 2 The Timid Cannot Learn and the Short Tempered cannot teach
3/12/10 Solow Growth Model – The Basics 3 3 Start w/ the National Accounts in a closed economy, ognoring governement spending: Y = C+I Y – National Income = National Output (GDP) C – Aggregate Consumption I – Aggregate Investment Or: I = S = Y-C = sY S – National Savings s – Savings rate

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3/12/10 Solow Growth Model – The Basics 4 4 The National Savings are invested in increasing the National Capital Stock, K But, due to depreciation at a rate of δ , the capital stock declines by δ K every year The net annual change to K: Remembering that the national output is: Y=f(K,AL), a change in the capital stock translates into a change in national income K sY K δ - =
3/12/10 Solow Growth Model – Add Population & Technology 5 5 Labor work force – L grows at a rate of n Technology – A grows at a rate of g The effective workforce: AL Grows at a rate: n+g Income per effective worker: y = Y/AL Capital stock per worker: k = K/AL Annual increase in k: sy Annual decrease in k: δ k + (n+g)k k g n sy k ) ( + + - = δ

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3/12/10 The Long Run Steady State 6 6 In the LR, with no changes to any of the exogenous parameters(s, δ , n, g) capital stock per effective worker converges to a fixed value and does not change: The steady state value: Note: k g n sy k ) ( 0 + + - = = δ ) ( * * * k f g n s y g n s k + + = + + = δ δ
3/12/10 With Cobb-Douglas Production Function 7 7 Assume that we are working with labor

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